The bodily boundaries in amputees may seem to be more malleable than in non-amputees, given the propensity for a phantom limb to embody a mirror-reflected hand. However, in the present investigation, in which phantom-limb illusions within body space are induced and manipulated, we found that perceiving phantom sensations and illusory embodiment does not require amputation. Surprisingly, in the present modified rubber-hand illusion, we found that simultaneous stroking or stimulation of the participant's target hand was not necessary to induce illusions of embodiment and corresponding perceptual illusions. We tested this upper-limb paradigm in fourteen upper-limb amputees and twenty-six controls (including fourteen lower-limb amputees). We propose a model for embodiment of a rubber or real hand passively observed in a mirror. In this model, passive observation of the hand in the mirror triggers body representations (body image and body schema), most likely through activation of the posterior parietal cortex and temporo-parietal junction. Activity in these regions heightens awareness of peripersonal space and increases tactile sensitivity, and may subsequently enhance perception of illusory touch and embodiment. Furthermore, sense of embodiment may be more apparent to the participant when the hand is threatened; however, embodiment may even be strengthened when the motor system is engaged, evoking motor schemata to support the more easily induced perceptual embodiment via body image.