OBJECTIVE: The purpose of this study was to investigate the contribution of spectral fine structure and spectral envelope cues to recognition of Mandarin lexical tones in normal-hearing and sensorineural hearing-impaired Mandarin-speaking listeners. DESIGN: Four groups of subjects participated in the study, including 20 normal-hearing, 20 moderately, 20 moderately to severely, and 8 severely hearing-impaired listeners. The original speech materials consisted of 16 sets of Mandarin monosyllables spoken by a male and a female. Each monosyllable had four tonal patterns, resulting in a total of 64 combinations of consonants, vowels, and tones. A Linear Predictive Coding (LPC) algorithm was used to create two sets of synthesized materials, including 128 tokens with the original spectral fine structure mixed with the spectral envelope from a different tone, as well as 128 tokens with noise fine structure and the original spectral envelope. All subjects participated in tone recognition tests using the two sets of chimeric tone tokens. Oral responses to tones were recorded and scored as percent correct. RESULTS: Hearing-impaired listeners could take advantage of spectral fine structure in the recognition of lexical tones, but with increasing hearing loss, the ability of hearing-impaired listeners to recognize tones became worse, especially for severely hearing-impaired listeners. Hearing-impaired listeners showed significant differences in tone recognition between the male and female voices. Tone 3 was the easiest tone to perceive, followed by tone 2, whereas tones 1 and 4 were hard for all subjects, particularly when only the spectral envelope cue was available. Hearing-impaired listeners showed a significantly lower level of lexical tone recognition than normal-hearing listeners when using spectral envelope cues in comparison with normal-hearing listeners. CONCLUSIONS: These results demonstrate that the spectral fine structure cue dominates lexical tone recognition for all subjects. Listeners with sensorineural hearing impairment showed reduced ability in the recognition of lexical tones using both spectral fine structure and spectral envelope cues, which may result from their impaired auditory spectral resolution.