The study determined how spatiotemporal distribution of cortical activity to words in first and second language is affected by language, proficiency, and linguistic setting. Ten early bilinguals and 14 late adult bilinguals listened to pairs of words presented in Arabic (L1), Hebrew (L2), or in mixed pairs and indicated whether both words had the same meaning or not. Source current densities of event-related potentials were estimated. Activity to first words in the pair lateralized to right hemisphere, higher to L1 than L2 during early processing (<300 ms) among both groups but only among late bilinguals during late processing (>300 ms). During early and late processing, activities were larger in mixed than monolinguistic settings among early bilinguals but lower in mixed than in monolinguistic settings among late bilinguals. Late processing in auditory regions was of larger magnitude in left than right hemispheres among both groups. Activity to second words in the pair was larger in mixed than in monolinguistic settings during both early and late processing among both groups. Early processing of second words in auditory regions lateralized to the right among early bilinguals and to the left among late bilinguals, whereas late processing did not differ between groups. Wernicke's area activity during late processing of L2 was larger on the right, while on the left no significant differences between languages were found. The results show that cortical language processing in bilinguals differs between early and late processing and these differences are modulated by linguistic proficiency and setting. Hum Brain Mapp 34:2863–2881, 2013. © 2012 Wiley Periodicals, Inc.