Lexical tones are widely believed to be a formidable learning challenge for adult speakers of nontonal languages. While difficulties—as well as rapid improvements—are well documented for beginning second language (L2) learners, research with more advanced learners is needed to understand how tone perception difficulties impact word recognition once learners have a substantial vocabulary. The present study narrows in on difficulties suggested in previous work, which found a dissociation in advanced L2 learners between highly accurate tone identification and largely inaccurate lexical decision for tone words. We investigate a “best-case scenario” for advanced L2 tone word processing by testing performance in nearly ideal listening conditions—with words spoken clearly and in isolation. Under such conditions, do learners still have difficulty in lexical decision for tone words? If so, is it driven by the quality of lexical representations or by L2 processing routines? Advanced L2 and native Chinese listeners made lexical decisions while an electroencephalogram was recorded. Nonwords had a first syllable with either a vowel or tone that differed from that of a common disyllabic word. As a group, L2 learners performed less accurately when tones were manipulated than when vowels were manipulated. Subsequent analyses showed that this was the case even in the subset of items for which learners showed correct and confident tone identification in an offline written vocabulary test. Event-related potential results indicated N400 effects for both nonword conditions in L1, but only vowel N400 effects in L2, with tone responses intermediate between those of real words and vowel nonwords. These results are evidence of the persistent difficulty most L2 learners have in using tones for online word recognition, and indicate it is driven by a confluence of factors related to both L2 lexical representations and processing routines. We suggest that this tone nonword difficulty has real-world implications for learners: It may result in many toneless word representations in their mental lexicons, and is likely to affect the efficiency with which they can learn new tone words.