Locomotion and foraging on the wing require precise navigation in more than just the horizontal plane. Navigation in three dimensions and, specifically, precise adjustment of flight height are essential for flying animals. Echolocating bats drink from water surfaces in flight, which requires an exceptionally precise vertical navigation. Here, we exploit this behavior in the bat, Phyllostomus discolor, to understand the biophysical and neural mechanisms that allow for sonar-guided navigation in the vertical plane. In a set of behavioral experiments, we show that for echolocating bats, adjustment of flight height depends on the tragus in their outer ears. Specifically, the tragus imposes elevation-specific spectral interference patterns on the echoes of the bats' sonar emissions. Head-related transfer functions of our bats show that these interference patterns are most conspicuous in the frequency range ∼55 kHz. This conspicuousness is faithfully preserved in the frequency tuning and spatial receptive fields of cortical single and multiunits recorded from anesthetized animals. In addition, we recorded vertical spatiotemporal response maps that describe neural tuning in elevation over time. One class of units that were very sharply tuned to frequencies ∼55 kHz showed unusual spatiotemporal response characteristics with a preference for paired echoes where especially the first echo originates from very low elevations. These behavioral and neural data provide the first insight into biosonar-based processing and perception of acoustic elevation cues that are essential for bats to navigate in three-dimensional space.