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Visual hallucinations are a common, distressing, and disabling symptom of Lewy body and other diseases. Current models suggest that interactions in internal cognitive processes generate hallucinations. However, these neglect external factors. Pareidolic illusions are an experimental analogue of hallucinations. They are easily induced in Lewy body disease, have similar content to spontaneous hallucinations, and respond to cholinesterase inhibitors in the same way. We used a primed pareidolia task with hallucinating participants with Lewy body disorders (n = 16), non-hallucinating participants with Lewy body disorders (n = 19), and healthy controls (n = 20). Participants were presented with visual "noise" that sometimes contained degraded visual objects and were required to indicate what they saw. Some perceptions were cued in advance by a visual prime. Results showed that hallucinating participants were impaired in discerning visual signals from noise, with a relaxed criterion threshold for perception compared to both other groups. After the presentation of a visual prime, the criterion was comparable to the other groups. The results suggest that participants with hallucinations compensate for perceptual deficits by relaxing perceptual criteria, at a cost of seeing things that are not there, and that visual cues regularize perception. This latter finding may provide a mechanism for understanding the interaction between environments and hallucinations.