The present study extended findings of contrast effects in an auditory sarcasm perception task manipulating context and tone of voice. In contrast to previous research that had used sarcastic and sincere statements with a positive literal meaning, the present experiment examined how statements with a negative literal meaning would affect the results. Eighty-four undergraduate students completed a task in which an ambiguous, positive, or negative computer-generated context spoken in a flat emotional tone was followed by a statement with a negative literal meaning spoken in a sincere or sarcastic tone of voice. Results for both the proportion of sarcastic responses and response time showed a significant context by tone interaction, reflecting relatively fast sarcastic responses for the situation in which sarcasm would turn the statement into a compliment (positive context, sarcastic intonation) and fast sincere responses when the literal insult was emphasized (negative context, sincere intonation). However, the ambiguous context produced a pattern of results modulated by the tone of voice that was similar to that observed when the context/intonation pairing could not be interpreted as a compliment or an insult (negative context/sarcastic intonation or positive context/sincere intonation). These findings add to the body of literature suggesting that situational contrast, context, and intonation influence how sarcasm is perceived while demonstrating the importance of the literal meaning in sarcasm perception. They can be interpreted in the context of models of sarcasm comprehension that postulate two stages of processing.