Listeners find it relatively difficult to recognize words that are similar-sounding to other known words. In contrast, when asked to identify spoken nonwords, listeners perform better when the nonwords are similar to many words in their language. These effects of sound similarity have been assessed in multiple ways, and both sublexical (phonotactic probability) and lexical (neighborhood) effects have been reported, leading to models that incorporate multiple stages of processing. One prediction that can be derived from these models is that there may be differences among individuals in the size of these similarity effects as a function of working memory abilities. This study investigates how item-individual characteristics of nonwords (both phonotactic probability and neighborhood density) interact with listener-individual characteristics (such as cognitive abilities and hearing sensitivity) in the perceptual identification of nonwords. A set of nonwords was used in which neighborhood density and phonotactic probability were not correlated. In our data, neighborhood density affected identification more reliably than did phonotactic probability. The first study, with young adults, showed that higher neighborhood density particularly benefits nonword identification for those with poorer attention-switching control. This suggests that it may be easier to focus attention on a novel item if it activates and receives support from more similar-sounding neighbors. A similar study on nonword identification with older adults showed increased neighborhood density effects for those with poorer hearing, suggesting that activation of long-term linguistic knowledge is particularly important to back up auditory representations that are degraded as a result of hearing loss.