To guide our actions, the brain has developed mechanisms to code target locations in egocentric coordinates (i.e., with respect to the observer), and to update these when the observer moves. The latter mechanism, called visuomotor updating, is implemented in the dorsal visual stream of the brain. In contrast, the ventral visual stream is assumed to transform target locations into an allocentric reference frame that is highly sensitive to visual contextual illusions. Here, we tested the effect of the Müller-Lyer illusion on visuomotor updating in a double-step saccade task. Using the same paradigm in a 3T fMRI scanner, we investigated the effect of the illusion on the neural correlate of the updating process. Participants briefly viewed the Brentano version of the Müller-Lyer illusion with a target at its middle vertex, while fixating at one of the two endpoints of the illusion. Shortly after the disappearance of the stimulus, the eyes' fixation point moved to a position outside the illusion. After a delay, participants made a saccade to the remembered position of the target. The landing position of this saccade was systematically displaced in a manner congruent with the perceptual illusion, showing that visuomotor updating is affected by the illusion. fMRI results showed that the BOLD response in the occipito-parietal cortex (area V7) and the intraparietal sulcus related to planning of the saccade to the updated target was also modulated by the configuration of the illusion. This suggests that the dorsal visual stream represents perceived rather than physical locations of remembered saccade targets.