Visual adaptation has been successfully used as a psychophysical tool for studying the functional organization of the visual awareness. It has been shown that simultaneous presentation of flanking distracters impairs orientation discrimination in the periphery of visual field. In such conditions the crowded target is inaccessible to the awareness of observer. In the present study orientation-selective adaptation to illusory lines induced by two line gratings abutting each other with a phase shift was examined in crowded and non-crowded conditions. First, we tested the effect of crowding on illusory stimuli. Then visual adaptation to illusory lines in crowded and non-crowded conditions was studied. To role out the effects of lower level adaptations we used an animation paradigm in which the orientation of two grating lines altered repeatedly during adaptation phase. The performance of subjects deteriorated in crowded compared to non-crowded conditions: there was a significant difference between the performances in the two conditions (P< 0.001). Orientation specific adaptation to illusory lines preserved in both crowded and non-crowded conditions. Percent correct of same adapt-target and different adapt-target was significantly different in the two conditions (P< 0.001). We conclude that crowding effect occurs after processing of illusory contours in the visual stream. Since cortical area V2 is known to be involved in the processing of illusory lines, preservation of the adaptation to crowded illusory stimuli suggests that V2 is not a neural correlate of consciousness.