Recent findings have shown that psychedelics reliably enhance brain entropy (understood as neural signal diversity), and this effect has been associated with both acute and long-term psychological outcomes such as personality changes. These findings are particularly intriguing given that a decrease of brain entropy is a robust indicator of loss of consciousness (e.g. from wakefulness to sleep). However, little is known about how context impacts the entropy-enhancing effect of psychedelics, which carries important implications for how it can be exploited in, for example, psychedelic psychotherapy. This article investigates how brain entropy is modulated by stimulus manipulation during a psychedelic experience, by studying participants under the effects of LSD or placebo, either with gross state changes (eyes closed vs. open) or different stimulus (no stimulus vs. music vs. video). Results show that while brain entropy increases with LSD in all the experimental conditions, it exhibits largest changes when subjects have their eyes closed. Furthermore, brain entropy changes are consistently associated with subjective ratings of the psychedelic experience, but this relationship is disrupted when participants are viewing video — potentially due to a “competition” between external stimuli and endogenous LSD-induced imagery. Taken together, our findings provide strong quantitative evidence for the role of context in modulating neural dynamics during a psychedelic experience, underlining the importance of performing psychedelic psychotherapy in a suitable environment. Additionally, our findings put into question simplistic interpretations of brain entropy as a direct neural correlate of conscious level. Significance Statement The effects of psychedelic substances on conscious experience can be substantially affected by contextual factors, which play a critical role in the outcomes of psychedelic therapy. This study shows how context can modulate not only psychological, but also neurophysiological phenomena during a psychedelic experience. Our findings reveal distinctive effects of having eyes closed after taking LSD, including a more pronounced change on the neural dynamics, and a closer correspondence between brain activity and subjective ratings. Furthermore, our results suggest a competition between external stimuli and internal psychedelic-induced imagery, which supports the practice of carrying out psychedelic therapy with patients having their eyes closed.