Bilirubin toxicity remains a significant problem despite recent advances in the care of jaundiced (hyperbilirubinemic) neonates. A recent surge in reported cases of classical kernicterus, due in part to earlier hospital discharge and relaxation of treatment criteria for hyperbilirubinemia, and new reports of hyperbilirubinemia-induced auditory dysfunction using evoked potential based infant testing and hearing screening, underscore the need to better understand how hyperbilirubinemia causes brain damage in some infants, especially because the damage is preventable. Recent progress in understanding bilirubin binding and neurotoxicity resulting from unbound or "free" unconjugated bilirubin, how bilirubin affects the central nervous system in vivo and in vitro, and the use of new clinical tools in neonates, for example magnetic resonance imaging revealing bilateral lesions in globus pallidus and subthalamus, and abnormal brainstem auditory evoked potentials with normal inner ear function, may lead to improved detection and prevention of neurologic dysfunction and damage from bilirubin. Finally, the concern is raised that partial or isolated neurologic sequelae, for example auditory neuropathy and other central auditory processing disorders, may result from excessive amount and duration of exposure to free, unconjugated bilirubin at different stages of neurodevelopment.