As a spoken word unfolds over time, similar sounding words ("cap" and "cat") compete until one word "wins". Lexical competition becomes more efficient from infancy through adolescence. We examined one potential mechanism underlying this development: lexical inhibition, by which activated candidates suppress competitors. In Experiment 1, younger (7-8 years) and older (12-13 years) children heard words ("cap") in which the onset was manipulated to briefly boost competition from a cohort competitor ("cat"). This was compared to a condition with a nonword ("cack") onset that would not inhibit the target. Words were presented in a visual world task during which eye movements were recorded. Both groups showed less looking to the target when perceiving the competitor-splice relative to the nonword-splice, showing engagement of lexical inhibition. Exploratory analyses of linguistic adaptation across the experiment revealed that older children demonstrated consistent lexical inhibition across the experiment and younger children did not, initially showing no effect in the first half of trials and then a robust effect in the latter half. In Experiment 2, adults also displayed consistent lexical inhibition in the same task. These findings suggest that younger children do not consistently engage lexical inhibition in typical listening but can quickly bring it online in response to certain linguistic experiences. Computational modeling showed that age-related differences are best explained by increased engagement of inhibition rather than growth in activation. These findings suggest that continued development of lexical inhibition in later childhood may underlie increases in efficiency of spoken word recognition.