This study examined the role of context effects in the processing of homophones in Chinese and Chinese-English bilingual speech. In Experiment 1, Chinese speakers were presented with successively gated portions of a homophone in a sentence context, and they identified the homophone on the basis of its increasing acoustic information. In Experiment 2, Chinese-English bilinguals were presented with a cross-language homophone in a sentence context, and they named a visual probe that had or did not have phonological overlaps with the homophone. Results indicate that prior sentence context has an early effect on the disambiguation of various homophone meanings, shortly after the acoustic onset of the word, in both monolingual and bilingual situations. The results are accounted for by interactive activation models of lexical processing, in which the recognition of a homophone is a result of the interactions among phonological, lexical, and contextual information at an early stage.