The testing of a number of hypotheses about the effect of hearing a prior context sentence on immediate processing of a subsequent target sentence is described. According to the standard deep structure model, higher level processing (e.g. semantic interpretation, integration of context-tarqet information) does not occur immediately as speech is heard but is delayed until an initial deep structure analysis has been conducted. In contrast, the "on-line interactive" view states that processing proceeds at all levels simultaneously, implying that presence/absence of prior context should affect immediate processing. Two experiments confirm that context has a significant effect on immediate structural (syntactic/semantic) and lexical processing, supporting the on-line interactive view. A newly-developed on-line, short-latency sentence continuation task measured changes in the complexity of structural processing, while word monitoring latency provided an index of lexical processing. Results also supported a number of new hypotheses one of which stated that context can have opposite effects on immediate structural and lexical processing. While the addition of a prior context sentence always facilitated lexical processing, it either increased or decreased the complexity of structural processing at different points in the sentence depending on whether incoming material contained "old" or "new" information in relation to the context sentence. (Author/AMH)