Background: Many children with autism spectrum disorder (ASD) demonstrate verbal communication disorders reflected in lower verbal than non-verbal abilities. The present study examined the extent to which this discrepancy is associated with atypical speech sound differentiation. Methods: Differences in the amplitude of auditory event-related potentials elicited by contrasting consonant-vowel syllables during a passive listening paradigm were used to assess speech sound differentiation in 24 children with ASD and 18 chronological age-matched children with typical development (TD), M age 6.90 years (SD = 1.39). Results: Results revealed that compared with TD peers, children with ASD showed reduced consonant differentiation in the 84- to 308-ms period. Brain responses indexing consonant differentiation were negatively related to the degree of discrepancy in non-verbal and verbal abilities and mediated the relationship between diagnostic group membership and the greater discrepancy. Conclusions: We discuss the theoretical and clinical implications of the brain's response to speech sound contrasts possibly explaining the greater non-verbal versus language ability in children with ASD compared with that in typically developing children.