Noninvasive magnetoencephalography (MEG) method with excellent time resolution and reliable source localization techniques offer a valuable approach for assessing neurodynamics of normal and by pathology changed sensory processing. One of the strongest manifestations of early sensory processing is the amplitude variability of the M50 component of neuromagnetic responses that is commonly used to explore the brain’s ability to modulate its response to incoming repetitive and/or novel auditory stimuli, a process conceptualized as the gating mechanism. Although numerous studies have explored the modulation of the auditory P50/M50 components and suggested multiple generators, there is still no agreement on the underlying network. Dysfunction of sensory gating has been associated with pathophysiology of numerous psychiatric and neurological diseases (Freedman et al., 1996; Teo et al., 1997; Garcia-Rill et al., 2002; Uc et al., 2003; Thomas et al., 2009) whose causes are not yet established. To interpret the modulation demonstrated by sensory gating requires detailed spatio-temporal analysis of the P50/M50 cortical network to identify inter-subject variability in cortical generators and their individual dynamics. Patients with Alzheimer’s disease (AD) demonstrate a deficiency in suppressing the evoked P50/M50 auditory response to the second click of paired click stimuli (Cancelli et al., 2006; Jensen et al., 2001; Thomas et al., 2009) and the standard tones of an active or passive oddball paradigm (Cheng et al., 2012; Golob et al., 2009). Furthermore, AD patients manifest a significant decrease in cortical thickness of the lateral temporal and inferior frontal regions (Lerch et al., 2008), in addition to pathophysiological attributes of disease found in the hippocampus, entorhinal and anterior frontal cortex (Price et al., 1991). Observed deficits of auditory gating in AD patients may reflect a change in the number or spatial location of cortical sources that comprise the M50 component and/or an alteration of their activity. Extended cortical activations due to the model assumptions used could lead to biased source location and timecouse estimates and affect source resolution which could influence reliability of differentiation between normal and pathological cortical processing. Since the spatial extent of the cortical surfaces underlying individual components of neuromagnetic responses are still largely unknown, is of interest and yet not sufficiently examined, to investigate the possible effects of the used model assumptions in the case of extended cortical areas which could be activated by the processes of brain plasticity, reorganization of neural networks due to learning, training or therapy, the aging process or progression of different neuropathological processes as well as sensory processes. To identify the spatial and temporal characteristics of the cortical sources underlying the gating processes, auditory M50 response was evoked by tones of a passive oddball paradigm (1 kHz, p=0.8, standard tone; 1.2 kHz, p=0.2, rare tone) in 10 healthy elderly and 10 amnestic mild cognitive impaired (aMCI) or Alzheimer's disease (AD) patients. We searched for neurodynamic patterns of cortical gating selective for AD patients as well. The additional aim of our studies was a differential analysis of the functional relation between individual sources within the M50 network due to the assumed pathological alterations in AD patients. Auditory magnetic fields were recorded with 275 channel CTF whole-head system in a magnetically shielded room at the Mind Research Network, Albuquerque, New Mexico. While the relationship between sensory stimulation and the size of the cortical activations is generally unknown, the visual modality offers a unique possibility of an experimental manipulation of stimulus size-related increases of the spatial extent of cortical activation during the earliest activity in the retinotopically organized primary visual cortex. We used circular sinusoids of increasing diameters of 0.3°, 0.9° and 2°, presented one at a time, in random order, at the center of the visual field (CVF) or at a foveal location (3° right to the vertical meridian and 3° bellow the horizontal meridian) in the lower right visual field (LRVF) and numerical simulations on realistic cortical surfaces to explore the effects of increasing spatial extent of the activated cortical sources on the neuromagnetic fields, cortical neurodynamics, location estimation biases and source resolution. Visual magnetic fields of six healthy female subjects were recorded in a magnetically shielded room at the Biomagnetic Center, Friedrich Schiller University Jena, Germany using a 306-channel MEG system (Elekta Neuromag Oy, Helsinki, Finland). The multi-dipole Calibrated Start Spatio-Temporal (CSST) method was used for spatio temporal localization of sources active in the first 100 ms post-stimulus time interval in all empirical and numerical simulation studies. Three cortical regions underlying the auditory M50 network were identified: prefrontal cortex (PF) in addition to bilateral activations of superior temporal gyri (STG). Complex cortical dynamics of the PF source, which was also found in responses of STG sources, were reported within the 30-100 ms post-stimulus interval. The PF source was localized for 10/10 healthy subjects, whereas 9/10 demented patients were lacking the PF source for both tone conditions resulting in a detection of AD patients with 100% sensitivity and 90% specificity. We found significantly enhanced activity of the STG sources in response to both tone conditions for all subjects who lacked a PF source. Very strong two factor nonlinear correlation between Mini Mental State Examine (MMSE)/ Rey Osterreith Complex Figure (REY) test results and activation of PF generator (r = 0,99) was also found. Selective activation of the PF generator to the rare tone and significantly lower MMSE/REY test scores in a group within the control category of subjects reveals the possibility of AD detection at a very early, non-symptomatic stage of the disease. Our results demonstrated size related effects on amplitude and latencies as well as increase in limits in source resolution of the earliest occipital sources evoked by stimuli of increasing size presented at the centre of visual field but generally confirmed adequacy of multi-dipole modeling of extended cortical activity during early sensory processing. Reported results provide novel insights into the topology and neurodynamics of the M50 auditory network and suggest an inhibitory role of the PF source that suppressed activity of the STG sources in the auditory gating phenomenon. Very high correlation between MMSE/REY test results and activation of PF source offers insight into the pathophysiological processes underlying visual memory dysfunction. The absence of PF activity in AD patients and selective activation of PF on tones of oddball paradigm could become biomarkers significant not only in the diagnosis of disease, but also in detection of its preclinical phase.