Hearing loss is one of the most common complaints in adults over the age of 60 and a major contributor to difficulties in speech comprehension. To examine the effects of hearing ability on the neural processes supporting spoken language processing in humans, we used functional magnetic resonance imaging to monitor brain activity while older adults with age-normal hearing listened to sentences that varied in their linguistic demands. Individual differences in hearing ability predicted the degree of language-driven neural recruitment during auditory sentence comprehension in bilateral superior temporal gyri (including primary auditory cortex), thalamus, and brainstem. In a second experiment, we examined the relationship of hearing ability to cortical structural integrity using voxel-based morphometry, demonstrating a significant linear relationship between hearing ability and gray matter volume in primary auditory cortex. Together, these results suggest that even moderate declines in peripheral auditory acuity lead to a systematic downregulation of neural activity during the processing of higher-level aspects of speech, and may also contribute to loss of gray matter volume in primary auditory cortex. More generally, these findings support a resource-allocation framework in which individual differences in sensory ability help define the degree to which brain regions are recruited in service of a particular task.