A series of psychoacoustic experiments was conducted in subjects implanted with a permanent intracochlear bipolar electrode. These experiments were designed to reveal the nature of the sensation evoked by direct sinusoidal electrical stimulation of the acoustic nerve. A series of single unit experiments in the inferior colliculus of cats was then conducted, using intracochlear stimulus electrodes identical to those implanted in human subjects in all respects except size, and using identical stimuli. These physiological experiments were designed to reveal how sounds evoked by intracochlear electrical stimulation in humans are generated and encoded in the auditory nervous system. Among the results were the following: 1) The sensation arises from direct electrical stimulation of the acoustic nerve. It is not “electrophonic” hearing arising from electro-mechanical excitation of hair cells. 2) While sounds are heard with electrical stimulation at frequencies from below 25 to above 10,000 Hz, the useful range of discriminative hearing is limited to frequencies below 400–600 Hz. 3) There is no “place” coding of electrical stimuli of different frequency. Tonal sensations generated by electrical stimulation must be encoded by the time order of discharge of auditory neurons. 4) The periods of sinusoidal electrical stimuli are encoded in discharges of inferior colliculus neurons at frequencies up to 400–600 Hz. 5) Both psychoacoustic and physiological evidence indicates that the low tone sensations evoked by electrical stimulation are akin to the sensations of “periodicity pitch” generated in the normal cochlea. 6) Most cochlear hair cells are lost with intracochlear implantation with this electrode. Most ganglion cells survive implantation. Implications of these experiments for further development of an acoustic prosthesis are discussed.