This study investigated the effects of fast-acting hearing-aid compression on normal-hearing and hearing-impaired listeners' spatial perception in a reverberant environment. Three compression schemes-independent compression at each ear, linked compression between the two ears, and "spatially ideal" compression operating solely on the dry source signal-were considered using virtualized speech and noise bursts. Listeners indicated the location and extent of their perceived sound images on the horizontal plane. Linear processing was considered as the reference condition. The results showed that both independent and linked compression resulted in more diffuse and broader sound images as well as internalization and image splits, whereby more image splits were reported for the noise bursts than for speech. Only the spatially ideal compression provided the listeners with a spatial percept similar to that obtained with linear processing. The same general pattern was observed for both listener groups. An analysis of the interaural coherence and direct-to-reverberant ratio suggested that the spatial distortions associated with independent and linked compression resulted from enhanced reverberant energy. Thus, modifications of the relation between the direct and the reverberant sound should be avoided in amplification strategies that attempt to preserve the natural sound scene while restoring loudness cues.