Interspecific aggression between sibling species may enhance discrimination of competitors when recognition errors are costly, but proximate mechanisms mediating increased discriminative ability are unclear. We studied behavioral and neural mechanisms underlying responses to conspecific and heterospecific vocalizations in Alston's singing mouse (Scotinomys teguina), a species in which males sing to repel rivals. We performed playback experiments using males in allopatry and sympatry with a dominant heterospecific (Scotinomys xerampelinus) and examined song-evoked induction of egr-1 in the auditory system to examine how neural tuning modulates species-specific responses. Heterospecific songs elicited stronger neural responses in sympatry than in allopatry, despite eliciting less singing in sympatry. Our results refute the traditional neuroethological concept of a matched filter and instead suggest expansion of sensory sensitivity to mediate competitor recognition in sympatry.