Human listeners achieve quick and effortless speech comprehension through computations of conditional probability using Bayes rule. However, the neural implementation of Bayesian perceptual inference remains unclear. Competitive-selection accounts (e.g., TRACE) propose that word recognition is achieved through direct inhibitory connections between units representing candidate words that share segments (e.g., hygiene and hijack share /haidʒ/). Manipulations that increase lexical uncertainty should increase neural responses associated with word recognition when words cannot be uniquely identified. In contrast, predictive-selection accounts (e.g., Predictive-Coding) propose that spoken word recognition involves comparing heard and predicted speech sounds and using prediction error to update lexical representations. Increased lexical uncertainty in words, such as hygiene and hijack, will increase prediction error and hence neural activity only at later time points when different segments are predicted. We collected MEG data from male and female listeners to test these two Bayesian mechanisms and used a competitor priming manipulation to change the prior probability of specific words. Lexical decision responses showed delayed recognition of target words (hygiene) following presentation of a neighboring prime word (hijack) several minutes earlier. However, this effect was not observed with pseudoword primes (higent) or targets (hijure). Crucially, MEG responses in the STG showed greater neural responses for word-primed words after the point at which they were uniquely identified (after /haidʒ/ in hygiene) but not before while similar changes were again absent for pseudowords. These findings are consistent with accounts of spoken word recognition in which neural computations of prediction error play a central role.SIGNIFICANCE STATEMENT Effective speech perception is critical to daily life and involves computations that combine speech signals with prior knowledge of spoken words (i.e., Bayesian perceptual inference). This study specifies the neural mechanisms that support spoken word recognition by testing two distinct implementations of Bayes perceptual inference. Most established theories propose direct competition between lexical units such that inhibition of irrelevant candidates leads to selection of critical words. Our results instead support predictive-selection theories (e.g., Predictive-Coding): by comparing heard and predicted speech sounds, neural computations of prediction error can help listeners continuously update lexical probabilities, allowing for more rapid word identification.