An algorithm for a wearable prototype digital hearing aid processor will be described. The algorithm enables the hearing aid wearer to better utilize their binaural directional hearing ability. Fitting of the algorithm is accomplished in two steps: Hearing aid equalization (HAE) and hearing loss compensation (HLC). HAE equalizes the amplitude and phase insertion effects of the aids and maintains the binaural cues with the aids in place. The HAE digital filters for each ear are obtained from in situ probe tube measurements of aided and unaided test signals. HLC for each ear is also achieved with digital filters and associated gain. The target response for each HLC filter is determined from auditory thresholds and sound field reference signals, and is based on an adaptation of articulation theory. The response of the HLC filter can be modified to prevent acoustic feedback. The HAE and HLC filters are combined to produce a single digital filter. A description of the processor, fitting algorithm, and the hardware and software comprising the fitting system will be given. Results from field trials with hearing-impaired individuals will also be reported.