The dynamic range over which fine intensity discrimination is possible has been reported to be largely unaffected by limitation of the spread of neuronal activity to neighbouring frequency regions by bandstop noise masking. We have therefore examined the responses of cochlear nerve and nucleus neurons to tone and noise signals in the presence of a bandstop masking noise designed to be comparable to that employed in the psychophysical experiments. Under these conditions, the vast majority of cochlear nerve fibres were saturated by sound levels at which some 50% of our sample of cochlear nucleus neurons still responded to signal level differences. The extended dynamic ranges of these cochlear nucleus neurons was shown to be a result of activation, by the masking noise, of the lateral inhibitory side-bands 'biassing' the neuron's discharge. A small proportion of cochlear fibres, having low spontaneous discharge rates and showing strong two-tone suppression effects, demonstrated analogous but not so pronounced effects. It is unclear in what form information on the level of stimuli under these conditions is transmitted by the majority of apparently saturated cochlear nerve fibres, but several possible mechanisms are discussed.