Ultrashort echo time MRI requires specialized pulse sequences with nominal echo times as low as a few microseconds to detect signals from the short T2 tissues frequently encountered in the musculoskeletal system. Usually, magnitude images are reconstructed and these often show low tissue contrast. Ultrashort echo time phase images of the meniscus show surprisingly high contrast despite their very short echo time. In this article, we investigated the source of this contrast using the Bloch equations, simulations, phantom experiments, and tissue studies. Phase evolution was shown to occur in ultrashort echo time sequences during the finite radiofrequency pulse and readout periods, and previously unrecognized susceptibility differences between fiber groups were observed in the meniscus. Magn Reson Med, 2011. © 2011 Wiley‐Liss, Inc.