This study examined the effect of sentence context and local acoustic structure on phoneme categorization. Target stimuli from a 10-step GOAT-COAT continuum, differing only on a temporal cue for voice onset time (VOT), were embedded in carrier sentences that biased interpretation toward either "goat" or "coat." While subjects listened to the sentences they also responded as quickly as possible to a visual probe by indicating whether the probe matched the target stimulus they heard. Results showed that the interaction of VOT and sentence context significantly affected both identification and RT for stimuli near the perceptual boundary; the identification function showed a boundary shift in favor of the biased context and peak response times for each context reflected the shifted identification boundaries. In addition, response times were faster for identification of stimuli near the category boundary when responses were congruent, rather than incongruent with the sentence context. The response time differences for congruent versus incongruent responses in the boundary region are interpreted as depending on the results of initial phonological analysis; potentially ambiguous categorizations may be subject to additional evaluation in which a context-congruent response is both preferred and available earlier.