Sea surface wave‐height fluctuations cause a time‐dependent mismatch in environmental conditions and therefore effect the detection and localization performance of a matched‐field processor. A sensitivity study was conducted to examine this mismatch phenomenon for an idealized, range‐independent, Pekeris channel of 100‐m depth, with a 150‐Hz source, using a centrally positioned vertical array of 21 hydrophones spanning 50% of the water column. Variations in the sea surface height of + 3.5 m were considered as an extreme, but realistic, case, and the output signal‐to‐noise ratio (SNR) and predicted range and depth of the source were determined from a series of range‐depth maximum‐likelihood ambiguity surfaces. Surface height variation caused a systematic error in range estimation, such that when the depth was increased due to a wave crest, the target range appeared shorter than the actual range. The opposite held for a wave trough. The corresponding calculations of target depth were consistently biased tow...