Hearing impaired individuals often have difficulty hearing in noise because of reduced spectral resolution. Previous research suggests that dichotic processing, where information from neighboring frequency regions is sent to opposite ears, may benefit those individuals. However, dichotic processing can degrade binaural cues, reducing spatial release from masking and localization accuracy. In this study, an eight-channel filter bank was used to create diotic and dichotic stimuli as well as partial dichotic stimuli that used a combination of diotic and dichotic filters. To test the effect of dichotic processing on binaural cues, speech intelligibility in noise and sound localization were evaluated in normal hearing subjects. Results showed that dichotic processing degrades speech intelligibility in spatially separated noise and sound localization, but that degradation can be minimized by using partial dichotic filtering.