The synergy of perceptual psychology, technology, and neuroscience can be used to comprehend how virtual reality affects cognition of human brain. Numerous studies have used neuroimaging modalities to assess the cognitive state and response of the brain with various external stimulations. The virtual reality-based devices are well known to incur visual, auditory, and haptic induced perceptions. Neurophysiological recordings together with virtual stimulations can assist in correlating humans’ physiological perception with response in the environment designed virtually. The effective combination of these two has been utilized to study human behavior, spatial navigation performance, and spatial presence, to name a few. Moreover, virtual reality-based devices can be evaluated for the neurophysiological correlates of cognition through neurophysiological recordings. Challenges exist in the integration of real-time neuronal signals with virtual reality-based devices, and enhancing the experience together with real-time feedback and control through neuronal signals. This article provides an overview of neurophysiological correlates of cognition as revealed by virtual reality experience, together with a description of perception and virtual reality-based neuromodulation, various applications, and existing challenges in this field of research.