Background noise challenges auditory recognition of speech and may reveal the underlying deficits in auditory word recognition skills. Previous studies have reported an association between children's auditory skills and various linguistic skills, including phonology, although in some languages only. However, language-specific features influence these connections. This study describes the associations between auditory word recognition ability and phonological skills in a representative group of 3;6-year-old children in less studied language, Finnish (N = 65). Auditory recognition was assessed using a closed-set word recognition task presented in multi-talker babble noise (+13 dB) and the phonological skills using Finnish Phonology Test. A significant, moderate correlation was found between Finnish-speaking children's auditory word recognition and phonological skills. The late-developing phoneme /r/ challenged word recognition. The sibilant /s/ was noted to be the most noise resistant consonant, and the phoneme pair /r/ and /l/ created the most mutual confusion. The accuracy of phonological representations may be a moderating factor for both auditory recognition and phonological skills. Children with strong phonological skills may recognize spoken words more accurately in noisy everyday situations than children with weaker phonological skills. This should be taken into consideration in children's daily environments, such as daycare centers and preschools.