A hands-free telephone assembly according to the present invention comprises a speech network mounted in a base and having an input channel and an output channel, the speech network being connected to a telephone interface which is selectively connectable to a telephone line. Also included are a gain-controllable amplifier in said input channel, a primary transducer including a primary speaker connected to the output of said gain-controllable amplifier, and a primary microphone, and a gain and frequency controllable amplifier connecting the primary microphone to said input channel. The primary transducer is mounted in a housing separate from the base, said housing being constructed and arranged so as to fit within the ear canal of a user and to be releasably maintained therein. Finally, the assembly contains a cancellation mechanism for suppressing positive feedback between the primary microphone and the primary speaker.