The inherent confound between the organization of articulation and the acoustic-phonetic structure of the speech signal makes it exceptionally difficult to evaluate the competing claims of motor and acoustic-phonetic accounts of how listeners recognize coarticulated speech. Here we use Granger causation analysis of high spatiotemporal resolution neural activation data derived from the integration of magnetic resonance imaging, magnetoencephalography and electroencephalography, to examine the role of lexical and articulatory mediation in listeners' ability to use phonetic context to compensate for place assimilation. Listeners heard two-word phrases such as "pen pad" and then saw two pictures, from which they had to select the one that depicted the phrase. Assimilation, lexical competitor environment and the phonological validity of assimilation context were all manipulated. Behavioral data showed an effect of context on the interpretation of assimilated segments. Analysis of 40Hz gamma phase locking patterns identified a large distributed neural network including 16 distinct regions of interest (ROIs) spanning portions of both hemispheres in the first 200ms of post-assimilation context. Granger analysis of individual conditions showed differing patterns of causal interaction between ROIs during this interval, with hypothesized lexical and articulatory structures and pathways driving phonetic activation in the posterior superior temporal gyrus in assimilation conditions, but not in phonetically unambiguous conditions. These results lend strong support for the motor theory of speech perception, and clarify the role of lexical mediation in the phonetic processing of assimilated speech. (Contains 2 tables and 3 figures.)