Traditional psychedelics such as LSD, psilocybin and phenethelymines bind with the 5-HT2A serotonin receptor, which has some sort of effect on the brain's visual and cognitive cortexes.
Disassociates like PCP and DXM clog the NMDA receptor, which is vital to the brain's ability to regulate transmissions between neurons. External stimuli is blocked, and one's brain creates images to replace what is not being seen.
but that wouldnt fully account for the hallucinations seen during say, xanax or chloral withdrawal.

h) downregulation of these mRNAs, suggesting the retinal activity dependency of their expression. Consistent with the high expression level in V1, clear modulatory effects of 5-HT1B and 5-HT2A receptor agonists on the responses of V1 neurons were observed in in vivo electrophysiological experiments. The modulatory effect of the 5-HT1B agonist was dependent on the firing rate of the recorded neurons: The effect tended to be facilitative for neurons with a high firing rate, and suppressive for those with a low firing rate. The 5-HT2A agonist showed opposite effects. These results suggest that this serotonergic system controls the visual response in V1 for optimization of information processing toward the incoming visual inputs.I believe that lsd causes your brain to produce (or mimics?) extra dopamine, serotonin, and epinephrine, all of which regulate your pyramidal cells which produce your conscious experiences. This is why things have brighter colors, your attention changes, etc.
On top of this, it also causes extra glutamate to be release, which is the chemical that sensory input causes. This is what causes hallucinations.
source: lecture about lsd and why it's so potent (I can't find it atm, but it's on youtube)