We investigated the chicken auditory system to understand how an interaural level difference (ILD) is processed. Sound intensity is extracted in the nucleus angularis (NA) and an ILD is processed in the dorsal lateral lemniscal nucleus (LLD). We found that the neural activity in these nuclei is affected by the interaural phase difference (IPD). Activity in the NA was suppressed by strong contralateral sound when binaural stimuli were presented in-phase, but the activity was enhanced by out-of-phase stimuli. These IPD dependent suppression or enhancement probably occurs through acoustic interference across the interaural canal connecting the middle ears of the two sides. The LLD neurons were excited by contralateral sound and inhibited by ipsilateral sound, reflecting excitation by the contralateral NA and inhibition from the ipsilateral NA, probably through the contralateral LLD as in the barn owl. The LLD unit activity encoded an ILD and was strongly modulated by the IPD. We propose a simple model to explain the interaural coupling effects and IPD modulation of LLD activity, and conclude that the modulation of neuronal activity by IPD may improve ILD processing and the direction sensitivity of LLD neurons to the contralateral ear, compensating for the small ILD cues.