Transcranial alternating current stimulation (tACS) is a noninvasive neuromodulation method which has been shown to modulate hearing, motor, cognitive and memory function. However, the mechanisms underpinning these findings are controversial, as studies show that the current reaching the cortex may not be strong enough to entrain neural activity. Here, we propose a new hypothesis to reconcile these opposing results: tACS effects are caused by transcutaneous stimulation of peripheral nerves in the skin and not transcranial stimulation of cortical neurons. Rhythmic activity from peripheral nerves then entrains cortical neurons. A series of experiments in rats and humans isolated the transcranial and transcutaneous mechanisms and showed that the reported effects of tACS on the motor system can be caused by transcutaneous stimulation of peripheral nerves. Whether or not the transcutaneous mechanism will generalize to tACS effects on other systems is debatable but should be investigated.