We investigated the accuracy of spatial basis function normalization using anatomical landmarks to determine how precisely homologous regions are colocalized. We examined precision in terms of: (1) the number of nonlinear basis functions used by the normalization procedure; (2) the degree of (Bayesian) regularization; and (3) the effect of substituting different templates and how this interacted with the number of basis functions. The face validity of spatial normalization was assessed as a function of these parameters, using the colocalization of homologous landmarks in a test sample of 20 normally developing children and 5 children with bilateral hippocampal pathology. Our results suggest that when optimal normalization parameters are used, anatomical landmarks in the medial temporal lobes are colocalized to within a standard deviation of about 1 mm. When suboptimal parameters are used this standard deviation can increase up to 3 mm. Interestingly the optimal parameters are those that provide a rather constrained normalization as opposed to those that optimize intensity matching at the expense of rendering the warps “unlikely.” The implications of our results, for users of voxel-based morphometry, are discussed.