The auditory dorsal stream has been implicated in sensorimotor integration and concatenation of sequential sound events, both being important for processing of speech and music. The auditory ventral stream, by contrast, is characterized as subserving sound identification and recognition. We studied the respective roles of the dorsal and ventral streams, including recruitment of basal ganglia and medial temporal lobe structures, in the processing of tone sequence elements. A sequence was presented incrementally across several runs during functional magnetic resonance imaging in humans, and we compared activation by sequence elements when heard for the first time (“novel”) versus when the elements were repeating (“familiar”). Our results show a shift in tone-sequence-dependent activation from posterior-dorsal cortical areas and the basal ganglia during the processing of less familiar sequence elements towards anterior and ventral cortical areas and the medial temporal lobe after the encoding of highly familiar sequence elements into identifiable auditory objects.