Listening to speech in competing sounds poses a major difficulty for children with impaired hearing. This study aimed to determine the ability of children (3-12 yr of age) to use spatial separation between target speech and competing babble to improve speech intelligibility. Fifty-eight children (31 with normal hearing and 27 with impaired hearing who use bilateral hearing aids) were assessed by word and sentence material. Speech reception thresholds (SRTs) were measured with speech presented from 0 azimuth, and competing babble from either 0 or 90 azimuth. Spatial release from masking (SRM) was defined as the difference between SRTs measured with co-located speech and babble and SRTs measured with spatially separated speech and babble. On average, hearing-impaired children attained near-normal performance when speech and babble originated from the frontal source, but performed poorer than their normal-hearing peers when babble was spatially separated from target speech. On average, normal-hearing children obtained an SRM of 3 dB whereas children with hearing loss did not demonstrate SRM. Results suggest that hearing-impaired children may need enhancement in signal-to-noise ratio to hear speech in difficult listening conditions as well as normal-hearing children.