Low-frequency sound localization depends on the neural computation of interaural time differences (ITD) and relies on neurons in the auditory brain stem that integrate synaptic inputs delivered by the ipsi- and contralateral auditory pathways that start at the two ears. The first auditory neurons that respond selectively to ITD are found in the medial superior olivary nucleus (MSO). We identified a new mechanism for ITD coding using a brain slice preparation that preserves the binaural inputs to the MSO. There was an internal latency difference for the two excitatory pathways that would, if left uncompensated, position the ITD response function too far outside the physiological range to be useful for estimating ITD. We demonstrate, and support using a biophysically based computational model, that a bilateral asymmetry in excitatory post-synaptic potential (EPSP) slopes provides a robust compensatory delay mechanism due to differential activation of low threshold potassium conductance on these inputs and permits MSO neurons to encode physiological ITDs. We suggest, more generally, that the dependence of spike probability on rate of depolarization, as in these auditory neurons, provides a mechanism for temporal order discrimination between EPSPs.