The present study investigated the ability of native listeners to identify subtle phonetic contrasts in nonsense words and its relationship with the contralateral inhibition of transient evoked otoacoustic emissions (TEOAE). A group of 45 young adults with normal hearing sensitivity who were native speakers of Malayalam participated in the behavioral experiment. Phone identification score and reaction time for four phonetic pairs in nonsense words were measured for each participant. Based on the phone identification score, the participants were divided into high and low performers. Twelve participants randomly selected from each group were evaluated for contralateral inhibition of TEOAEs. Phone identification score and global contralateral inhibition amplitude of TEOAE were significantly higher and reaction time was significantly shorter in high performers than that of low performers. Significant correlation was found between the phone identification score and contralateral inhibition of TEOAE. Strength of the medial olivocochlear bundle activity explained about 30% of the variance in the phone identification scores providing evidence for the involvement of the descending auditory pathways in identifying the phonetic contrasts that are acoustically similar. These results support the emerging view that top down influences from higher centers shapes the responses of lower centers.