Binaural interaction in the brainstem and middle latency auditory evoked potentials to intensity (d I) and timing differences (d T) between the two ears was studied in 10 normal hearing young adults. A component reflecting binaural interaction in the brainstem potentials occurred at approximately 7 ms and was of largest amplitude when d I and d T were 0. The latency of the binaural interaction component gradually shifted and its amplitude decreased as d I or d T increased and binaural interaction became undetectable when d I = 16 dB or when d T ≥ 1.6 ms. In the middle latency potentials binaural interaction components peaking at 20, 32, and 45 ms were defined that were also largest when d I and d T = 0. The latency of the interaction did not shift with changes in d T and d I whereas the amplitude gradually decreased but binaural interaction components were still evident even at the largest values of d I (30 dB) and d T (3 ms). Psychophysical judgements of binaural perceptions showed binaural fusion of the stimuli to persist with d T values up to 1.6 ms and that lateralization of the intracranial image was complete when either d T = 1.6 ms or when d I = 16 dB. The results suggest that the presence of a binaural interaction component of auditory brainstem potentials correlates with the fusion of binaural click stimuli and the amplitude of the binaural interaction component correlates inversely with the degree of lateralization of the intracranial image. Binaural interaction components of middle latency potentials persist and continue to change even after the binaural stimuli cannot be fused.