This study investigated relationships between residential segregation in a large urban area and selected auditory discrimination and phonics skills among 240 lower and middle class Negro, Puerto Rican, and White fourth graders. Two tests were developed and taped specifically for use with earphones in this study: a 41-item Auditory Discrimination Test of graded standard word pairs containing minimal phonemic contrasts, and an 81-item decoding Phonics Test of regular sound-symbol relationships based on items from the Auditory Discrimination Test. The ethnolinguistic group distributions of auditory discrimination scores were found to differ significantly, at .01 level, after correction for vocabulary score: the Negro group contained the largest portion of high scorers, the Puerto Rican group indicated the greatest general difficulty, and the White group significantly outperformed all others. Neither socioeconomic class nor sex related to performance on this task. Phonics test scores did not relate to either sex or ethnolinguistic group membership--Puerto Rican and Negro subjects did not differ significantly from the White group on this task. Socioeconomic class was found to be a highly significant determinant, with middle class children far outperforming their lower class counterparts. (Author/MF)