When grasping an object, the fingers, hand and arm rarely collide with other non-target objects in the workspace. Kinematic studies of neurological patients (Schindler et al., 2004) and healthy participants (Chapman and Goodale, 2010a) suggest that the location of potential obstacles and the degree of interference they pose are encoded by the dorsal visual stream during action planning. Here, we used a slow event-related paradigm in functional magnetic resonance imaging (fMRI) to examine the neural encoding of obstacles in normal participants. Fifteen right-handed participants grasped a square target object with a thumb-front or thumb-side wrist-posture with (1) no obstacle present, (2) an obstacle behind the target object (interfering with the thumb-front grasp), or (3) an obstacle beside the target object (interfering with the thumb-side grasp). Within a specified network of areas involved in planning, a group voxelwise analysis revealed that one area in the left posterior intraparietal sulcus (pIPS) and one in early visual cortex were modulated by the degree of obstacle interference, and that this modulation occurred prior to movement execution. Given previous reports of a functional link between IPS and early visual cortex, we suggest that the increasing activity in the IPS with obstacle interference provides the top-down signal to suppress the corresponding obstacle coding in early visual areas, where we observed that activity decreased with interference. This is the first concrete evidence that the planning of a grasping movement can modulate early visual cortex and provides a unifying framework for understanding the dual role played by the IPS in motor planning and attentional orienting.