Abstract: To solve the problem that the noisy environment interferes with the binaural signals and decreases of the horizontal sound localization accuracy, a compensation algorithm for binaural signals in noisy environment based on the interaural specific loudness difference is proposed. Studies have shown that the interaural loudness difference can be used as a representation of the sound localization of the horizontal azimuth of the sound source. In order to eliminate the distortion of the interaural loudness difference caused by noisy environment and improve the sound localization accuracy in noisy environment, the proposed algorithm uses the interaural specific loudness difference of the binaural signals in quiet as target and adjusts the relative energy of the binaural signals to compensate the influence of noisy environment for the sound localization. Subjective listening experiments under different noise sound pressure levels and different signal-to-noise ratios prove the effectiveness of the algorithm. The experimental results show that the average perception error of the binaural signals compensated by the proposed algorithm is reduced by 4° compared with the original binaural signals in noisy environment.