Bone conduction headphones are devices that transmit sound through the bones of a listener's head rather than through the air in their outer ear. They have been marketed as a safer way to enjoy audio content while walking, jogging, or cycling. However, listening to distracting sounds over bone conduction may still disrupt a listener's awareness of their auditory environment. The present study investigated the nature of this interference with the faculty of sound source localization-a key prerequisite for generating situation awareness through audio. Participants sat in the middle of a circle of loudspeakers and listened for target sounds played from different directions. Each time they heard a sound, they responded by indicating what direction they judged the sound to have come from. Meanwhile, participants listened to distractor sounds played through bone conduction headphones. Participants heard (1) no distractor sounds, (2) a spoken story that they were instructed to ignore, and (3) the same spoken story that they were instructed to attend to. For conditions (2) and (3), some participants heard a version of the story with background music, while others heard the spoken story without the music. Participants had greater localization error in the distractor-present conditions. Additionally, participants who heard the spoken story with music exhibited greater localization error. However, there was no effect of whether participants ignored or attended to distractors. This pattern was attributed to masking effects, and was more pronounced for narrow-band targets compared to broadband targets. Post-hoc analyses found evidence of a 'pulling' effect, in which localization judgments were systematically biased toward the apparent direction of the bone conducted distractors. These results indicate that using bone conduction headphones can be expected to cause a decline in a person's awareness of their environment, in a subtle way that a jogger or cyclist might not be actively aware of, even if their attention is directed to the environment and environmental sounds are readily detectible.