A method and apparatus for producing virtual sound sources that are externally perceived and positioned at any orientation in azimuth and elevation from a listener is described. In this system, a set of speakers is mounted in a location near the temple of a listener's head. A head tracking system determines the location and orientation of the listeners head and provides the measurements to a computer which processes audio signals, from an audio source, in conjunction with a head related transfer function (HRTF) filter to produce spatialized audio. The HRTF filter maintains the virtual location of the audio signals/sound, thus allowing the listener to change locations and head orientation without degradation of the audio signal. The audio system of the present invention produces virtual sound sources that are externally perceived and positioned at any desired orientation in azimuth and elevation from the user.