Voluntary actions are thought to be selected with respect to their intended goal. Converging data suggests that medial frontal cortex plays a crucial role in linking actions to their predicted effects. Recent neuroimaging data also suggests that during action selection, the brain pre-activities the representation of the predicted action effect. We review evidence of action effect prediction, both in terms of its neuro-physiological basis as well as its functional consequences. By assuming that action preparation includes activation of the predicted sensory consequences of the action, we provide a mechanism to understand sensory attenuation and intentional binding. In this account, sensory attenuation results from more difficult discrimination between the observed action effect and the pre-activation of the predicted effect, as compared to when no (or incorrect) prediction is present. Similarly, a predicted action effect should also reach the threshold of awareness faster (intentional binding), if its perceptual representation is pre-activated. By comparing this potential mechanism to mental imagery and repetition suppression we propose a possible neural basis for the processing of predicted action effects.