Iron deficiency is a major health problem in developing countries manifesting not only as overt anemia but also involving the CNS resulting in cognitive and behavioral deficits. Iron is an important nutrient and essential element involved in myelin formation and neurotransmitter synthesis and thus contributes to normal neurological activity. Hypomyelination has been reported in iron deficient states with possible neural conduction defects. The brainstem auditory evoked potential response is used extensively to identify lesions associated with various demyelinating diseases and hence has been used in the present study to observe the effect of iron deficiency on sensory brain function. A trend of increased absolute and interpeak latencies and reduced amplitudes of the waves leading to a definite linear correlation between the severity of anemia and the degree of neurophysiological deficit suggests a subclinical involvement of the auditory pathway in the brainstem of iron deficient children.