Two experiments were conducted to examine the importance of inhibitory abilities and semantic context to spoken word recognition in older and young adults. In Experiment 1, identification scores were obtained in 3 contexts: single words, low-predictability sentences, and high-predictability sentences. Additionally, identification performance was examined as a function of neighborhood density (number of items phonetically similar to a target word). Older adults had greater difficulty than young adults recognizing words with many neighbors (hard words). However, older adults also exhibited greater benefits as a result of adding contextual information. Individual differences in inhibitory abilities contributed significantly to recognition performance for lexically hard words but not for lexically easy words. The roles of inhibitory abilities and linguistic knowledge in explaining age-related impairments in spoken word recognition are discussed.