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Successful listening in a second language (L2) involves learning to identify the relevant acoustic–phonetic dimensions that differentiate between words in the L2, and then use these cues to access lexical representations during real-time comprehension. This is a particularly challenging goal to achieve when the relevant acoustic–phonetic dimensions in the L2 differ from those in the L1, as is the case for the L2 acquisition of Mandarin, a tonal language, by speakers of non-tonal languages like English. Previous work shows tone in L2 is perceived less categorically (Shen and Froud, 2019) and weighted less in word recognition (Pelzl et al., 2019) than in L1. However, little is known about the link between categorical perception of tone and use of tone in real time L2 word recognition at the level of the individual learner. This study presents evidence from 30 native and 29 L1-English speakers of Mandarin who completed a real-time spoken word recognition and a tone identification task. Results show that L2 learners differed from native speakers in both the extent to which they perceived tone categorically as well as in their ability to use tonal cues to distinguish between words in real-time comprehension. Critically, learners who reliably distinguished between words differing by tone alone in the word recognition task also showed more categorical perception of tone on the identification task. Moreover, within this group, performance on the two tasks was strongly correlated. This provides the first direct evidence showing that the ability to perceive tone categorically is related to the weighting of tonal cues during spoken word recognition, thus contributing to a better understanding of the link between phonemic and lexical processing, which has been argued to be a key component in the L2 acquisition of tone (Wong and Perrachione, 2007).