The central objectives of this research are to: 1) define and model the role of auditory capacity in the development of auditory skill and spoken language competence in infants and toddlers with hearing loss, and 2) provide clinicians and researchers with valid, reliable, and efficient tools for the assessment of auditory capacity in individual children. Auditory capacity is defined as the ability of subcortical auditory mechanisms to generate neurally coded information about sounds with the detail and consistency needed by cortical centers for the development of auditory skills. Auditory capacity cannot be measured directly but must be inferred from auditory performance when using behavioral assessment techniques. However, because behavioral tests are confounded by numerous developmental and task-related variables, it has been difficult to determine whether auditory capacity improves over time or remains fixed in the hearing-impaired child after the sensory device has been fitted and adjusted for maximum performance. In work carried out during the current grant period, a battery of speech perception tests were developed for assessing auditory speech perception capacity in very young children that attempt to minimize non-auditory variables. Results to date indicate that tests utilizing head-turn responses have been effective with infants up to around 1.5 years of age, and that tests requiring conditioned play responses or repetition have been effective with children aged 3 years or older. But, between 1.5 and 3 years of age, existing procedures have been less effective. In a second line of research using protocols that incorporate child-caregiver interactions, results indicate that such methods are particularly effective in assessing emerging communication skills. Three specific aims are proposed that continue these lines of research. The first aim is to develop and apply a behavioral test of auditory capacity that involves child-caregiver interactions in a comfortable naturalistic setting. The second aim is to measure auditory capacity using electrophysiological methods, specifically the N1-P2 Acoustic Change Complex (ACC), in response to phonologically significant changes of a steady-state, speech-derived stimulus. The third aim applies both behavioral and electrophysiological test paradigms to determine whether auditory capacity remains fixed or is changing in hearing-impaired children during early childhood development after they have been fitted with a sensory device. These three aims rely on cross-sectional and longitudinal designs to test a series of hypotheses that address the auditory maturation and learning of normally hearing children and hearing-impaired children younger than 4 years of age.