Sensory systems use a variety of strategies to increase the signal to noise ratio in their inputs at the receptor level. However, important cues for sound localization are not present at the individual ears, but are computed after inputs from the two ears converge within the brain, and we hypothesized that additional strategies to enhance the representation of these cues might be employed in the initial stages after binaural convergence. Specifically, we investigated the transformation that takes place between the first two stages of the gerbil auditory pathway that are sensitive to differences in the arrival time of a sound at the two ears (interaural time differences; ITDs): the medial superior olive (MSO), where ITD tuning originates, and the dorsal nucleus of the lateral lemniscus (DNLL), to which the MSO sends direct projections. We use a combined experimental and computational approach to demonstrate that the coding of ITDs is dramatically enhanced between these two stages, with the mutual information in the responses of single neurons increasing by a factor of 2. We also show that this enhancement is related to an increase in dynamic range for neurons with high preferred frequencies and a decrease in variability for neurons with low preferred frequencies. These results suggest that a major role of the initial stages of the ITD pathway may be to enhance the representation created at the site of coincidence detection and illustrate the potential of this pathway as a model system for the study of strategies for enhancing sensory representations in the mammalian brain.