Why is spatial tuning in auditory cortex weak, even though location is important to object recognition in natural settings? This question continues to vex neuroscientists focused on linking physiological results to auditory perception. Here we show that the spatial locations of simultaneous, competing sound sources dramatically influence how well neural spike trains recorded from the zebra finch field L (an analog of mammalian primary auditory cortex) encode source identity. We find that the location of a birdsong played in quiet has little effect on the fidelity of the neural encoding of the song. However, when the song is presented along with a masker, spatial effects are pronounced. For each spatial configuration, a subset of neurons encodes song identity more robustly than others. As a result, competing sources from different locations dominate responses of different neural subpopulations, helping to separate neural responses into independent representations. These results help elucidate how cortical processing exploits spatial information to provide a substrate for selective spatial auditory attention.