In the inner ear (cochlea) the acoustical stimulus is encoded into the ensemble of pulse series occurring in each of the 40,000 nerve fibers of the auditory nerve. The cochlea exhibits, on hydrodynamic grounds, a frequency-to-space transformation with a modest amount of frequency resolution. For sinusoidal stimuli the nerve fibers show a far greater frequency selectivity. The instants at which action potentials (nerve pulses of uniform waveform) may occur in an individual nerve fiber can be predicted from a signal transformation model which contains as its most essential elements a linear filter followed by a triggerable pulse generator. This model explains frequency selectivity and phase locking for sinusoidal stimuli in a satisfactory way, provided the correct parameters are selected in accordance with the specific properties of the nerve fiber under study. Whether such, a model would represent frequency resolution in a more general sense, remains to be seen. As far as the linear circuit, part one of the model, is concerned, application of a cross-correlation technique under stimulation with white noise would yield the filter’s impulse response characteristic. However, in the physiological experiment the output of the filter is not accessible. It has been shown that with a special correlation technique, utilizing the (analog) stimulus signal and the (digital) series of action potentials of a nerve fiber, it is possible to recover the essential properties of the linear filter’s impulse response. Application of this “reverse correlation” technique in experiments on anaesthetized cats has shown that under stimulation with white noise the filter has a very sharp frequency response. This effective frequency response agrees well with the one obtained with sinusoidal signals. That this response is so much sharper than the mechanics of the cochlea would allow for, remains a puzzling, and as yet unexplainable, fact. It is concluded that frequency analysis in the cochlea proceeds as if it were realized by a linear filter and the initiation of nerve pulses is a process that operates quite independently of it. Each one of the nerve fibers of the auditory nerve is apparently excited by a specific portion of the acoustical stimulus’ frequency spectrum; the “resonance frequencies” of the fibers covering the entire range of audible frequencies. This property is referred to as the “principle of specific coding.” The findings bear an interesting relation to properties of the (human) auditory system that have been obtained by psychophysical experiments. From several problem areas one can infer that the manner of signal encoding as described by the principle of specific coding is not exhaustive. It may well be possible that finer details about the excitation pattern of nerve fibers are processed by higher auditory centers.