Evidence has accumulated that posterior superior temporal sulcus (STS) is critically involved in phonological processing during speech perception, although there are conflicting accounts regarding the degree of lateralization. The current fMRI experiment aimed to identify phonological processing during speech perception through repetition-suppression effects. Repetition-suppression occurs when brain activity decreases from repetitive presentation of stimulus characteristics, in regions of cortex that process those characteristics. We manipulated the degree of phonological repetition among words in short lists to obtain systematic decreases in brain response, indicative of phonological processing. The fMRI experiment presented seventeen participants with recorded wordlists, of low, medium, or high phonological repetition, defined by how many phonemes were shared among words. Bilaterally, middle STS demonstrated activity differences consistent with our prediction of repetition-suppression, as responses decreased systematically with each increase in phonological repetition. Phonological repetition-suppression in bilateral STS converges with neuroimaging evidence for phonological processing, and word deafness resulting from bilateral superior temporal lesions.