Virtual reality presents a new set of challenges and opportunities for both engineers and neuroscientists. Here we provide an overview of a programme designed by a group of psychologists, neuroscientists and VR specialists to address some of the most outstanding issues in the field ranging from the very low-level (for example, how the brain processed motion-in-depth signals generated by stereoscopic display devices) to the very high level (how virtual environments can lead to a sense of immersion and emotional engagement). We present data from psychophysical, electrophysiological and neuroimaging experiments and explain how different research methodologies can be applied to different problems in the field of VR/AR. We end by describing an open-source, extensible software package for studying issues in VR that can interface to common laboratory measurement equipment and discussing future directions and challenges facing the neuroscience and VR engineering communities.