In testing the hypothesis that surface phonetic form is included in short-term memory (STM) representation, the tone sandhi phenomenon in Mandarin Chinese was exploited, and, as a prerequisite, the hypothesis that tonal similarity affects STM of verbal material in a tone language was also tested. In Experiment 1, subjects recalled visually presented sequences of seven monosyllabic Chinese morphemes having either the same tone or different tones. More errors were made on the monotonal sequences than on the multitonal sequences, confirming the effect of tonal similarity on STM. In Experiment 2, subjects recalled visually presented sequences of disyllabic nonsense words. The sequences were designed in such a way that half of them were subject to the tone sandhi rule in Mandarin Chinese, whereas the other half were not. The consequence of applying the tone sandhi rule, as designed, was to make all the first characters in the sequences identical in pronunciation, thus creating potential phonological confusion. More errors, indeed, occurred on the sequences subject to the tone sandhi rule than on those not subject to it, indicating the existence of a surface phonetic representation in STM. The findings in this study provide further insight into the phonological mechanism of STM. Different accounts for this mechanism are also discussed in the light of the new findings.