In my opinion this has to do with how perception works in general.
There are many situations, where you "see" something, that is not there. Optical and other sensory illusions are a prime example. Usually these mis-perceptions result from sensory input that our organs of perception were not built to analyze. For example, the size-weight illusion stems from the fact that we don't have objects of equal size and equal outside material but differing weights in our natural habitat. You will easily recognize that all sensory illusions are induced by highly artificial stimuli such as straight and parallel lines, which have only existed in the most recent past and have as yet not had a big influence on human evolution.
In the case of drugs and hallucinations, your brain is stimulated in a way that is not meaningful for it, and it tries to make sense of what if "perceives" in the context of its evolution and experience. Obviously the stimulation by a certain drug comes close to what the stimulation would be like if outside reality were like you hallucinate it.
A drug induced hallucination is basically a sensory illusion, with the difference that you stimulate the brain directly, instead of the sensory organs.
To "break" an illusion, you need to provide a stimulus that overrides or "corrects" the misperception, e.g. a ruler to show that the lines are parallel (or not parallel) etc. Just knowing the truth (because you drew the lines yourself) doesn't change the effect.
Since drug induced hallucinations originate not in an outside sensory stimulus but in a direct manipulation of the brain, I would guess that touching the elephant head of your friend might not help to break the illusion -- you might even feel differently. But I have no experience with drugs and couldn't find any reports on this.