Word in noise identification is facilitated by acoustic differences between target and competing sounds and temporal separation between the onset of the masker and that of the target. Younger and older adults are able to take advantage of onset delay when the masker is dissimilar (Noise) to the target word, but only younger adults are able to do so when the masker is similar (Babble). We examined the neural underpinning of this age difference using cortical evoked responses to words masked by either Babble or Noise when the masker preceded the target word by 100 or 600 ms in younger and older adults, after adjusting the signal-to-noise ratios (SNRs) to equate behavioural performance across age groups and conditions. For the 100 ms onset delay, the word in noise elicited an acoustic change complex (ACC) response that was comparable in younger and older adults. For the 600 ms onset delay, the ACC was modulated by both masker type and age. In older adults, the ACC to a word in babble was not affected by the increase in onset delay whereas younger adults showed a benefit from longer delays. Hence, the age difference in sensitivity to temporal delay is indexed by early activity in the auditory cortex. These results are consistent with the hypothesis that an increase in onset delay improves stream segregation in younger adults in both noise and babble, but only in noise for older adults and that this change in stream segregation is evident in early cortical processes.