In humans, lateralization and fusion of binaurally presented clicks are correlated with the latency and amplitude of the binaural difference potential (BDP) (e.g., Furst et al., 1985). The BDP is derived by subtracting the brainstem auditory evoked potential (BAEP) for binaural stimulation from the sum of the BAEPs for left and right monaural stimulation. Our aim in this work was to determine the cellular generators of the BDP and thus identify cells that may be crucial for specific types of binaural sound processing. To this end, we injected kainic acid into the superior olivary complex (SOC) or the cochlear nucleus (CN) in cats and examined the effects of the resulting lesions on the click-evoked BDP. Lesions confined to the anterior anteroventral CN (AVCNa) substantially reduced the BDP, while lesions primarily involving more posterior parts of the CN had little or no effect. BDP reductions occurred for lesions involving either high (> 10 kHz) or lower (< 10 kHz) characteristic frequency (CF) regions of the AVCNa (as well as the posterior CN). Lesions involving the SOC reduced the BDP and, in one case, eliminated the high-pass filtered (270 Hz cutoff) BDP. Combining these results with published information about the physiology and anatomy of auditory brainstem cells, we conclude that: (1) spherical cells in the AVCNa are essential for BDP production, (2) the earliest part of the BDP is generated by medial superior olive (MSO) principal cells which receive spherical cell inputs, (3) a later part is probably generated by the cellular targets of MSO principal cells and, (4) the cells involved in BDP generation have CFs above, as well as below, 10 kHz. Since humans, like cats, have a well-developed MSO, we suggest that the MSO may also be essential for BDP production in humans. Thus, perceptual correlates of the BDP, binaural fusion and click lateralization, apparently involve the MSO.