Detection and localization of a target sound in the presence of concurrent, spatially distributed masking sounds is one of the most challenging tasks for the mammalian auditory system. Previous studies demonstrated that the ability to localize signals is decreased by interfering noise. In order to directly compare the behavioral performance in a signal processing task in noise between gerbils and humans in the free sound field, we quantified their localization ability for a lowfrequency signal in the presence of six masking noise sources surrounding the subject. Thresholds were measured both for masking noises that were correlated or uncorrelated across the masking sources. Overall, the gerbils required a higher signal/noise ratio to detect the low-frequency signal than the humans; that is, the behavioral performance of the gerbils was considerably worse than that of the humans. Moreover, switching from maskers that were uncorrelated across the masking sources to correlated maskers resulted in more masking in gerbils but in a release from masking in humans. These results would suggest that the gerbil may not be a good animal model for binaural processing. However, simulations of the localization thresholds in a numerical model of binaural processing in gerbils and humans reveal that both the inferior overall performance in gerbils and the opposite effect of masker correlation on the detection thresholds can be attributed to the smaller head size and the wider peripheral auditory filters in gerbils. Thus, the current data indicate that the binaural processor itself (i.e., the evaluation of signals coming from the two ears) is equally sensitive in gerbils and humans. However, the physical limitations imposed by the small head prevent the gerbil from performing equally well in the current paradigm.