Important sounds can be easily missed or misidentified in the presence of extraneous noise. We describe an auditory illusion in which a continuous ongoing tone becomes inaudible during a brief, non-masking noise burst more than one octave away, which is unexpected given the frequency resolution of human hearing. Participants strongly susceptible to this illusory discontinuity did not perceive illusory auditory continuity (in which a sound subjectively continues during a burst of masking noise) when the noises were short, yet did so at longer noise durations. Participants who were not prone to illusory discontinuity showed robust early electroencephalographic responses at 40-66 ms after noise burst onset, whereas those prone to the illusion lacked these early responses. These data suggest that short-latency neural responses to auditory scene components reflect subsequent individual differences in the parsing of auditory scenes.