Behavioral studies in humans suggest that sensorineural hearing loss (SNHL) decreases sensitivity to the temporal structure of sound, but neurophysiological studies in mammals provide little evidence for diminished temporal coding. We found that SNHL in chinchillas degraded peripheral temporal coding in background noise substantially more than in quiet. These results resolve discrepancies between previous studies and help to explain why perceptual difficulties in hearing-impaired listeners often emerge in noisy situations.