People can establish whether a sentence is hypothetically true even if what it describes can never be literally true given the laws of the natural world. Two event-related potential (ERP) experiments examined electrophysiological responses to sentences about unrealistic counterfactual worlds that require people to construct novel conceptual combinations and infer their consequences as the sentence unfolds in time (e.g., "If dogs had gills..."). Experiment 1 established that without this premise, described consequences (e.g., "Dobermans would breathe under water ...") elicited larger N400 responses than real-world true sentences. Incorporation of the counterfactual premise in Experiment 2 generated similar N400 effects of propositional truth-value in counterfactual and real-world sentences, suggesting that the counterfactual context eliminated the interpretive problems posed by locally anomalous sentences. This result did not depend on cloze probability of the sentences. In contrast to earlier findings regarding online comprehension of logical operators and counterfactuals, these results show that ongoing processing can be directly impacted by propositional truth-value, even that of unrealistic counterfactuals. (Contains 2 tables and 5 figures.)