Many neurons adapt their spike output to accommodate the prevailing sensory environment. Although such adaptation is thought to improve coding of relevant stimulus features, the relationship between adaptation at the neural and behavioral levels remains to be established. Here we describe improved discrimination performance for an auditory spatial cue (interaural time differences, ITDs) following adaptation to stimulus statistics. Physiological recordings in the midbrain of anesthetized guinea pigs and measurement of discrimination performance in humans both demonstrate improved coding of the most prevalent ITDs in a distribution, but with highest accuracy maintained for ITDs corresponding to frontal locations, suggesting the existence of a fovea for auditory space. A biologically plausible model accounting for the physiological data suggests that neural tuning is stabilized by inhibition to maintain high discriminability for frontal locations. The data support the notion that adaptive coding in the midbrain is a key element of behaviorally efficient sound localization in dynamic acoustic environments.