Recent advances in magnetic sensing has made on-scalp magnetoencephalography (MEG) possible. In particular, optically-pumped magnetometers (OPMs) have reached sensitivity levels that enable their use in MEG. In contrast to the SQUID sensors used in current MEG systems, OPMs do not require cryogenic cooling and can thus be placed within millimetres from the head, enabling the construction of sensor arrays that conform to the shape of an individual’s head. To properly estimate the location of neural sources within the brain, one must accurately know the position and orientation of sensors in relation to the head. With the adaptable on-scalp MEG sensor arrays, this coregistration becomes more challenging than in current SQUID-based MEG systems that use rigid sensor arrays. Here, we used simulations to quantify how accurately one needs to know the position and orientation of sensors in an on-scalp MEG system. The effects that different types of localisation errors have on forward modelling and source estimates obtained by minimum-norm estimation, dipole fitting, and beamforming are detailed. We found that sensor position errors generally have a larger effect than orientation errors and that these errors affect the localisation accuracy of superficial sources the most. To obtain similar or higher accuracy than with current SQUID-based MEG systems, RMS sensor position and orientation errors should be (Formula presented.) and (Formula presented.), respectively.