In order to determine unambiguously the bearing of a sound source, a fish must be able to resolve acoustic pressure and the components of the acoustic displacement vector from the signals detected by the otolithic organs. A new hypothesis for the processing of acoustical information by bony fish is presented. It is demonstrated that much of the processing required to do this may be implicit in the structure of the ear and its associated neural innervation. Possible algorithms are presented that the central nervous system might use to further process the derived information to localize a sound source and discriminate frequency and range. The hypothesis is shown to be consistent with much of what is known of the morphology and physiology of the auditory system of bony fishes.