Phonological skills, language ability, and literacy scores were compared for four groups: 19 children with mild-to-moderate sensorineural hearing loss (SNH), 20 children with specific language impairment (SLI), 20 controls matched on chronological age to the SNH group (CA), and 15 controls matched on receptive vocabulary level to a subset of the SLI group (CB). In common with the SLI group, mean scores of children with mild-to-moderate hearing loss were significantly poorer on tests of phonological short-term memory, phonological discrimination, and phonological awareness than CA controls. No differences between group means were observed in SNH and CA control groups on vocabulary, digit and sentence recall, sentence comprehension, and literacy scores. However, there was considerable individual variation within the SNH group. Nearly 50% of the SNH group showed phonological impairment associated with poorer expressive and receptive vocabulary and higher hearing thresholds than remaining children without phonological impairment. Nonword repetition deficits were observed in SNH subgroups with and without phonological impairment and were of a similar magnitude to those observed in children with SLI. Indeed, poorer repetition in children with SLI could only be differentiated from children with SNH on phonologically complex nonwords. Overall, findings suggested major problems in nonword repetition and phonological impairment occurred without clinically significant deficits in wider language and literacy abilities in children with mild-to-moderate sensorineural hearing loss. Implications for theories of SLI are discussed.