The current study examines whether bilingual word recognition in spoken sentences is influenced by cross-lingual phonological similarity. ERPs were measured while German-English bilinguals listened to German sentences. Target words in the sentences were either German-English homophones (e.g., eagle – Igel ‘hedgehog’), German words that were phonologically closely related to English words (e.g., kitten – Kittel ‘smock’), or German words that had no phonological relation to English words (e.g., Ziegel ‘brick’). ERPs to target words showed an N400-like facilitation effect for words with cross-lingual phonological overlap (homophones and German-English related words) compared to words with no cross-lingual overlap. However, these results were restricted to bilinguals who learned both languages before age 6, but not for those bilinguals who learned English after age 6. This suggests that early bilinguals activate words from both languages when processing spoken sentences in their dominant language-context.