The Wisconsin Card Sorting Task (WCST) has been used to assess dysfunction of the prefrontal cortex and basal ganglia. Previous brain imaging studies have focused on identifying activity related to the set-shifting requirement of the WCST. The present study used event-related functional magnetic resonance imaging (fMRI) to study the pattern of activation during four distinct stages in the performance of this task. Eleven subjects were scanned while performing the WCST and a control task involving matching two identical cards. The results demonstrated specific involvement of different prefrontal areas during different stages of task performance. The mid-dorsolateral prefrontal cortex (area 9/46) increased activity while subjects received either positive or negative feedback, that is at the point when the current information must be related to earlier events stored in working memory. This is consistent with the proposed role of the mid-dorsolateral prefrontal cortex in the monitoring of events in working memory. By contrast, a cortical basal ganglia loop involving the mid-ventrolateral prefrontal cortex (area 47/12), caudate nucleus, and mediodorsal thalamus increased activity specifically during the reception of negative feedback, which signals the need for a mental shift to a new response set. The posterior prefrontal cortex response was less specific; increases in activity occurred during both the reception of feedback and the response period, indicating a role in the association of specific actions to stimuli. The putamen exhibited increased activity while matching after negative feedback but not while matching after positive feedback, implying greater involvement during novel than routine actions.