Background Virtual reality hypnosis (VRH) has emerged as a new and promising option for pain management. Nonetheless, neural dynamics of pain modulation during VRH have not been investigated yet. The aim of this study was to measure the effects of VRH on pain, combining neurophysiological and self‐reported measurements. Methods Eighteen healthy subjects underwent noxious electrical stimulations in both normal wakefulness and VRH conditions. Dissociation, absorption, time perception, anxiety, pain intensity and unpleasantness, heart rate variability and breathing were reported for each condition. EEG signals were analysed using event‐related potentials (ERP) and time–frequency response (TFR) time‐locked to stimuli. Neurophysiological features were correlated with self‐reported data. Results VRH condition was associated with lower pain and higher dissociation. VRH significantly decreased amplitudes of N100 and P200 ERP components, reduced EEG power between 1 and 5 Hz from 100 to 560 ms, and increased EEG power from 5 to 11 Hz from 340 to 800 ms. These findings were observed at frontal, central and posterior electrodes. Heart rate variability was significantly higher and breathing frequency reduced with VRH. Correlations were found between the self‐reported level of pain and ERP components. Conclusion VRH modulates cerebral pain processes and body physiology, leading to reduced pain levels. These findings offer a first insight on the analgesic mechanisms of VRH and suggest that VRH is an effective approach to reduce experimental pain. Significance VRH decreases experimental pain perception, increases subject level of dissociation and modulates cerebral pain processing mechanisms. Pain can be managed with analgesic medication but also through complementary interventions. Among these, hypnosis and virtual reality (VR) are known to reduce pain for patients and healthy individuals. In recent years, an innovative technique combining hypnosis and VR has been proposed to help patients in managing pain. However, to our knowledge, no study has focused on the underlying mechanisms of this VR/hypnosis combination. We showed that VR combined with hypnosis decreases experimental pain, increases dissociation and influences EEG modulation.