Sensory experience during development has lasting effects on perception and neural processing. Exposing animals to artificial stimuli early in life influences the tuning and functional organization of the auditory cortex, but less is known about how the rich acoustical environments experienced by vocal communicators affect the processing of complex vocalizations. Here, we show that in zebra finches (Taeniopygia guttata), a colonial-breeding songbird species, exposure to a naturalistic social-acoustical environment during development has a profound impact on cortical-level auditory responses to conspecific song. Compared to birds raised by pairs in acoustic isolation, birds raised in a breeding colony had higher average firing rates, selectivity, and discriminability, especially in the narrow-spiking, putatively inhibitory neurons of a higher-order auditory area, the caudomedial nidopallium (NCM). Neurons in colony-reared birds were also less correlated in their tuning and more efficient at encoding the spectrotemporal structure of conspecific song. These results suggest that the auditory cortex adapts to noisy, complex acoustical environments by strengthening inhibitory circuitry, functionally decoupling excitatory neurons while maintaining overall excitatory-inhibitory balance.