This study used perceptual and articulatory data to investigate a language specific phonemic inventory, and allophonic rules for homorganic initial voiced stops versus homorganic nasal stops, and oral versus nasal vowels in Taiwanese. Four experiments were conducted: concept formation, gating, and two airflow studies. Results of a first nasal airflow study on syllable initial voiced stops and nasal stops showed that initial voiced stops were nasalized when preceded by a nasal consonant across a word boundary. Results of a concept formation experiment indicated that Taiwanese listeners grouped homorganic voiced stops and nasal stops into the same category. A gating experiment showed that subjects were insensitive to the phonetic differences between homorganic voiced stops and nasal stops. The presence or absence of nasality within the vowel nucleus was the crucial cue to the identification of oral and nasal syllables. A second nasal airflow study on vowel nuclei demonstrated that oral vowels were nasalized at their onset and offset when preceded or followed by a nasal consonant respectively. The distinction between oral and nasal vowels was maintained at the center of the vowel nuclei. By classifying homorganic initial voiced stops and nasal stops into the same category, Taiwanese speakers were able to ignore the phonetic difference between them and relied on the distinction between nasal vowel versus oral and nasalized vowel to distinguish between nasal versus oral syllables. Taiwanese speakers produced a clear distinction between oral and nasal vowels to retain the crucial role that oral versus nasal contrasts on vowel nuclei played during perception experiments. This study offers phonetic evidence to answer the controversial nasality issue in Taiwanese. Furthermore, a link was found between perception and extent of application of allophonic rules during production.