Normal aging is associated with a degradation of perceptual abilities and a decline in higher-level cognitive functions, notably working memory. To remediate age-related deficits, cognitive training programs are increasingly being developed. However, it is not yet definitively established if, and by what mechanisms, training ameliorates effects of cognitive aging. Furthermore, a major factor impeding the success of training programs is a frequent failure of training to transfer benefits to untrained abilities. Here, we offer the first evidence of direct transfer-of-benefits from perceptual discrimination training to working memory performance in older adults. Moreover, using electroencephalography to evaluate participants before and after training, we reveal neural evidence of functional plasticity in older adult brains, such that training-induced modifications in early visual processing during stimulus encoding predict working memory accuracy improvements. These findings demonstrate the strength of the perceptual discrimination training approach by offering clear psychophysical evidence of transfer-of-benefit and a neural mechanism underlying cognitive improvement.