To accurately localize our limbs and guide movements toward external objects, the brain must represent the body and its surrounding (peripersonal) visual space. Specific multisensory neurons encode peripersonal space in the monkey brain, and neurobehavioral studies have suggested the existence of a similar representation in humans. However, because peripersonal space lacks a distinct perceptual correlate, its involvement in spatial and bodily perception remains unclear. Here, we show that applying brushstrokes in mid-air at some distance above a rubber hand—without touching it—in synchrony with brushstrokes applied to a participant’s hidden real hand results in the illusory sensation of a “magnetic force” between the brush and the rubber hand, which strongly correlates with the perception of the rubber hand as one’s own. In eight experiments, we characterized this “magnetic touch illusion” by using quantitative subjective reports, motion tracking, and behavioral data consisting of pointing errors toward the rubber hand in an intermanual pointing task. We found that the illusion depends on visuo-tactile synchrony and exhibits similarities with the visuo-tactile receptive field properties of peripersonal space neurons, featuring a non-linear decay at 40 cm that is independent of gaze direction and follows changes in the rubber hand position. Moreover, the “magnetic force” does not penetrate physical barriers, thus further linking this phenomenon to body-specific visuo-tactile integration processes. These findings provide strong support for the notion that multisensory integration within peripersonal space underlies bodily self-attribution. Furthermore, we propose that the magnetic touch illusion constitutes a perceptual correlate of visuo-tactile integration in peripersonal space.