Lightness contrast and assimilation are opposite phenomena: in contrast grey targets appear darker when bordering bright rather than dark surfaces; in assimilation grey targets appear lighter when bordering bright rather than dark surfaces. The underlying neurophysiological mechanisms of these phenomena are not known. The aim of this study was to investigate the relationship between contrast and assimilation, and the timing and levels of perceptual and cognitive processing using combined behavioural and electrophysiological methods. Thirty undergraduate students (23 female, age range 18–48 years) participated in a forced-choice (grey target is lighter/darker than a comparison square) task, using stimuli designed such that the inducers were in two configurations (small and large) and two shades (white and black). The behavioural data (more consistent and faster responses) corroborated previous findings of stronger contrast effects with white inducers and stronger assimilation effects with black inducers. According to the Event-Related Potentials (ERP) results the mean amplitude was larger in conditions with less consistent and slower behavioural responses. Thus, with contrast responses P1 amplitude was larger with black than white inducers, and N1 amplitude was larger to assimilation than contrast when the configuration of the stimulus was held constant. These results suggest contrast may occur as early as P1 (~ 110 ms) and assimilation may occur later in N2 (~ 220 ms), whereas in some conditions, differences in ERPs associated with contrast vs assimilation may happen as early as in N1 (~ 170 m), in occipital and parietal cortical sites.