The purpose of this study was to determine the effect of signal level and signal-to-noise ratio (SNR) on the latency and amplitude of evoked cortical activity to further our understanding of how the human central auditory system encodes signals in noise. Cortical auditory evoked potentials (CAEPs) were recorded from 15 young normal-hearing adults in response to a 1000 Hz tone presented at two tone levels in quiet and while continuous background noise levels were varied in five equivalent SNR steps. These 12 conditions were used to determine the effects of signal level and SNR level on CAEP components P1, N1, P2, and N2. Based on prior signal-in-noise experiments conducted in animals, we hypothesized that SNR, would be a key contributor to human CAEP characteristics. As hypothesized, amplitude increased and latency decreased with increasing SNR; in addition, there was no main effect of tone level across the two signal levels tested (60 and 75 dB SPL). Morphology of the P1-N1-P2 complex was driven primarily by SNR, highlighting the importance of noise when recording CAEPs. Results are discussed in terms of the current interest in recording CAEPs in hearing aid users.