Relations among chords ("harmonic syntax") lie at the heart of music listening. Notably, harmonic function, a chord’s standing within a key, modulates expectations emerging as a piece unfolds. But how are such relations parsed when music is merely heard in our minds, i.e. during musical imagery? We used fMRI to uncover neural signatures underlying the internal generation of (audible or silenced) musical phrase closures, in an "active listening" paradigm. In different chord sequences, harmonic contexts established strong expectations for target chords that fulfilled either tonic or dominant harmonic functions, within a given musical key. Controlling for acoustic content, classifiers decoded the key of the chord sequence in both Perception and Imagery conditions; the key matched the target's harmonic function. Representational Similarity Analysis further suggested "key" was saliently encoded, which supports an interpretation of the chord sequence being processed holistically, i.e., in its full harmonic context. We propose harmonic function as the manifestation of a generative model transforming acoustic representations into abstracted representations along the imagery–perception continuum, governed by key as a long-distance harmonic property. Framed this way, our results address the previously unanswered theoretical question of how harmonic expectation affords mental representations usable to inwardly or outwardly generate music.