Purpose: To determine the effect of hearing loss (HL) on children's performance for an auditory task under demanding listening conditions and to determine the effect of digital noise reduction (DNR) on that performance. Method: Fifty children with normal hearing (NH) and 30 children with HL (8-12 years of age) categorized words in the presence of auditory or visual competitors, or both. Stimuli were presented at 50 dB SPL at a 0-dB signal-to-noise ratio. Children with HL were fitted with behind-the-ear hearing aids that had DNR technology. When DNR was activated, output decreased 4 dB, and signal-to-noise ratio increased 2 dB. Results: Significant main effects of group and age were observed. Performance for both groups decreased in noise, and the performance of the children with HL decreased further with the addition of the visual task. However, performance was unaffected by DNR. For the children with HL, stimulus audibility and communication skills contributed significantly to performance, whereas their history of hearing aid use did not. Conclusions: For the children with HL, tasks unrelated to hearing interfered with their ability to participate in the auditory task. Consistent with previous studies, performance in noise was unaffected by DNR.