In a previous paper (Hermance and Peltier 1970), integral expressions for the magnetotelluric fields of a line source over a stratified conductor were obtained and numerically evaluated for a sequence of simple conductivity structures. This calculation was intended to simulate the magnetotelluric 'source effect' which is anticipated at auroral and equatorial latitudes. The most serious flaw in this line source model of an electrojet is that it does not take into account the laterally diffuse nature of the real current distribution. By assuming that the current density in the electrojet has a Gaussian dependence upon the horizontal coordinate a more realistic source model can be constructed. Representative solutions to the induction problem employing this source are analyzed in an effort to obtain a more accurate measure of the effect of finite source geometry on magnetotelluric interpretations in auroral and equatorial regions where strong electrojets exist at E-layer altitudes. In tectonically active areas such as Iceland (which is under the auroral electrojet), it appears that Cagniard's assumption of a "plane-wave" source leads to a correct interpretation of the subsurface conductivity structure in the commonly employed U.L.F. frequency band (10−4 Hz–1 Hz). A relationship, Tozer (1969), is here assumed to exist between tectonism, anomalously high near surface temperatures, and corresponding increases in electrical conductivity. In tectonically stable shield areas, however, the effect of finite source geometry is more pronounced and could lead to significant errors in interpretation.