EEG alpha-band activity is generally thought to represent an inhibitory state related to decreased attention and play a role in suppression of task-irrelevant stimulus processing, but a competing hypothesis suggests an active role in processing task-relevant information — one in which phase dynamics are involved. Here we used simultaneous EEG–fMRI and a whole-brain analysis to investigate the effects of prestimulus alpha activity on the event-related BOLD response during an auditory oddball task. We separately investigated the effects of the posterior alpha rhythm’s power and phase on activity related to task-relevant stimulus processing and also investigated higher-level decision-related processing. We found stronger decision-related BOLD activity in areas late in the processing stream when subjects were in the high alpha power state prior to stimulus onset, but did not detect any effect in primary sensory regions. Our phase analysis revealed correlates in the bilateral thalamus, providing support for a thalamo–cortical loop in attentional modulations and suggesting that the cortical alpha rhythm acts as a cyclic modulator of task-related responses very early in the processing stream. Our results help to reconcile the competing inhibition and active-processing hypotheses for ongoing alpha oscillations and begin to tease apart the distinct roles and mechanisms underlying their power and phase.