The binaural hearing system (1) comprises ITF means (3a;3b) for providing at least one interaural transfer function (30a;30b); noise reduction means (5a;5b) for performing noise reduction in dependence of said at least one interaural transfer function. The method of operating a binaural hearing system (1) comprises the steps of providing at least one interaural transfer function (30a;30b); performing noise reduction in dependence of said at least one interaural transfer function. Preferably, said noise reduction means (5a;5b) comprises two binaural Wiener filters (5a,5b) each having a cost function comprising at least one term describing a desired interaural transfer function, wherein said at least one interaural transfer function provided by said ITF means (3a,3b) is assigned to said at least one term. Preferably, said cost function comprises a speech distortion term, a residual noise term and two ITF terms for preserving the interaural transfer functions of speech and noise components. This allows to preserve binaural cues while reducing noise.