Rapid sound amplitude changes—amplitude modulation (AM)—are important features of communication sounds like speech, and play a role in other perceptual phenomena including sound localization and pitch perception. Some cochlear nucleus (CN) neurons preferentially amplify AM information, relative to their auditory-nerve (AN) inputs [Frisina etal., Hear. Res. 44, 99–122 (1990)]. An important question from scientific and clinical perspectives is: How does the remarkable ability of some CN neurons to process AM change when stimuli are presented in more realistic acoustic environments containing background noise? To address this, single-unit recordings were made from 105 CN neurons and 43 AN fibers of 17 anesthetized chinchillas. Results indicate: (1) Depending on a sound’s intensity and AM frequency, a continuous wideband background noise decreased, preserved, or enhanced a unit’s ability to encode AM relative to quiet; (2) in most cases, background noise reduces the average response to AM; (3) the synchronous response to AM (fundamental frequency response) decreased in units that decreased their AM coding, and generally increased in units that preserved or enhanced encoding of AM in noise; and (4) some of these effects of noise on CN AM processing can be explained by alterations in AN AM coding at moderate sound levels, but enhancement of CN AM coding at high-sound levels appears to be mediated primarily within the CN. [Supported by NIH-NIDCD Grant No. R29 DC00408-05 and the International Center for Hearing & Speech Research—RICHS.]