Unusual reactions to auditory stimuli are often observed in autism and may relate to ineffective inhibitory modulation of sensory input (sensory gating). A previous study of P50 sensory gating did not reveal abnormalities in high-functioning school age children [C. Kemner, B. Oranje, M.N. Verbaten, H. van Engeland, Normal P50 gating in children with autism, J. Clin. Psychiatry 63 (2002) 214-217]. Sensory gating deficit may, however, characterize younger children with autism or be a feature of retarded children with autism, reflecting imbalance of neuronal excitation/inhibition in these cohorts. We applied a paired clicks paradigm to study P50 sensory gating, and its relation to IQ and EEG gamma spectral power (as a putative marker of cortical excitability), in young (3-8 years) children with autism (N=21) and age-matched typically developing children (N=21). P50 suppression in response to the second click was normal in high-functioning children with autism, but significantly (p<0.03) reduced in those with mental retardation. P50 gating improved with age in both typically developing children and those with autism. Higher ongoing EEG gamma power corresponded to lower P50 suppression in autism (p<0.02), but not in control group. The data suggest that ineffective inhibitory control of sensory processing is characteristic for retarded children with autism and may reflect excitation/inhibition imbalance in this clinical group.