OBJECTIVES: Difficulty in understanding speech in background noise is frequently reported by hearing-impaired people despite well-fitted amplification. Understanding speech in the presence of background noise involves segregating the various auditory stimuli into distinct streams using cues such as pitch characteristics, spatial location of speakers, and contextual information. One possible cause of listening difficulties in noise is reduced spatial-processing ability. Previous attempts to investigate spatial processing in hearing-impaired people have often been confounded by inadequate stimulus audibility. The present research aimed to investigate the effects of hearing impairment and aging on spatial-processing ability. The effect of cognitive ability on spatial processing was also explored. In addition, the relationship between spatial-processing ability and self-report measures of listening difficulty was examined to investigate how much effect spatial-processing ability has in real-world situations. DESIGN: Eighty participants aged between 7 and 89 years took part in the study. Participants' hearing thresholds ranged from within normal limits to a moderately severe sensorineural hearing loss. All participants had English as their first language and no reported learning disabilities. The study sample included both hearing aid users and non-hearing aid users. Spatial-processing ability was assessed with a modified version of the Listening in Spatialized Noise-Sentences test (LiSN-S). The LiSN-S was modified to incorporate a prescribed gain amplifier that amplified the target and distracting stimulus according to the National Acoustic Laboratories-Revised Profound (NAL-RP) prescription. In addition, participants aged 18 years and above completed the Neurobehavioral Cognitive Status examination and the Speech, Spatial and Qualities questionnaire. Participants aged under 18 years completed the Listening Inventory for Education questionnaire. RESULTS: Spatial-processing ability, as measured by the spatial advantage measure of the LiSN-S, was negatively affected by hearing impairment. Aging was not significantly correlated with spatial-processing ability. No significant relationship was found between cognitive ability and spatial processing. Self-reported listening difficulty in children, as measured with the Listening Inventory for Education, and spatial-processing ability were not correlated. Self-reported listening difficulty in adults, as measured by the Speech, Spatial and Qualities questionnaire, was significantly correlated with spatial-processing ability. CONCLUSIONS: All hearing-impaired people will have a spatial processing deficit of some degree. This should be given due consideration when counseling patients in regard to realistic expectations of how they will perform in background noise. Further research is required into potential remediation for spatial-processing deficits and the cause of these deficits.