Parsing of sound sources in the auditory environment or 'auditory scene analysis' is a computationally demanding cognitive operation that is likely to be vulnerable to the neurodegenerative process in Alzheimer's disease. However, little information is available concerning auditory scene analysis in Alzheimer's disease. Here we undertook a detailed neuropsychological and neuroanatomical characterization of auditory scene analysis in a cohort of 21 patients with clinically typical Alzheimer's disease versus age-matched healthy control subjects. We designed a novel auditory dual stream paradigm based on synthetic sound sequences to assess two key generic operations in auditory scene analysis (object segregation and grouping) in relation to simpler auditory perceptual, task and general neuropsychological factors. In order to assess neuroanatomical associations of performance on auditory scene analysis tasks, structural brain magnetic resonance imaging data from the patient cohort were analysed using voxel-based morphometry. Compared with healthy controls, patients with Alzheimer's disease had impairments of auditory scene analysis, and segregation and grouping operations were comparably affected. Auditory scene analysis impairments in Alzheimer's disease were not wholly attributable to simple auditory perceptual or task factors; however, the between-group difference relative to healthy controls was attenuated after accounting for non-verbal (visuospatial) working memory capacity. These findings demonstrate that clinically typical Alzheimer's disease is associated with a generic deficit of auditory scene analysis. Neuroanatomical associations of auditory scene analysis performance were identified in posterior cortical areas including the posterior superior temporal lobes and posterior cingulate. This work suggests a basis for understanding a class of clinical symptoms in Alzheimer's disease and for delineating cognitive mechanisms that mediate auditory scene analysis both in health and in neurodegenerative disease.