Although many researchers have shown that head-related transfer functions (HRTFs) can be used to produce realistic headphone simulations of relatively distant sounds, little is known about the use of HRTFs to simulate sound sources near the listener's head. In this experiment, HRTFs measured for nearby source locations with a KEMAR manikin were used to simulate sound sources at five different distances (12, 19, 25, 50 or 100 cm) and 13 different azimuth positions in the horizontal plane. Listeners localized the virtual sounds by placing an electromagnetic position sensor at the apparent location of each stimulus. The results show that listeners are able to extract distance and direction information from nearby virtual sounds generated with non-individualized HRTFs, but suggest that they are not able to localize these virtual sounds as well as they can localize nearby sound sources in the free field.