Cortical neurons remap their receptive fields and rescale sensitivity to spared peripheral inputs following sensory nerve damage. To address how these plasticity processes are coordinated over the course of functional recovery, we tracked receptive field reorganization, spontaneous activity, and response gain from individual principal neurons in the adult mouse auditory cortex over a 50-day period surrounding either moderate or massive auditory nerve damage. We related the day-by-day recovery of sound processing to dynamic changes in the strength of intracortical inhibition from parvalbumin-expressing (PV) inhibitory neurons. Whereas the status of brainstem-evoked potentials did not predict the recovery of sensory responses to surviving nerve fibers, homeostatic adjustments in PV-mediated inhibition during the first days following injury could predict the eventual recovery of cortical sound processing weeks later. These findings underscore the potential importance of self-regulated inhibitory dynamics for the restoration of sensory processing in excitatory neurons following peripheral nerve injuries.