The static envelope of a Gabor patch with a moving carrier appears to shift in the direction of the carrier motion; this phenomenon is known as the motion-induced position shift (De Valois & De Valois, 1991; Ramachandran & Anstis, 1990). This conventional stimulus configuration contains at least three covarying factors: the retinal carrier velocity, the environmental carrier velocity, and the carrier velocity relative to the envelope velocity, which happens to be zero. We manipulated these velocities independently to identify which is critical, and we measured the perceived position of the moving Gabor patch relative to a reference stimulus moving in the same direction at the same speed. In the first experiment, the position of the moving envelope observed with fixation appeared to shift in the direction of the carrier velocity relative to the envelope velocity. Furthermore, the illusion was more pronounced when the carrier moved in a direction opposite to that of the envelope. In the second and third experiments, we measured the illusion during smooth-pursuit eye movement in which the envelope was either static or moving, thereby dissociating retinal and environmental velocities. Under all conditions, the illusion occurred according to the envelope-relative velocity of the carrier. Additionally, the illusion was more pronounced when the carrier and envelope moved in opposite directions. We conclude that the carrier's envelope-relative velocity is the primary determinant of the motion-induced position shift.