This paper first reviews the state-of-the-art noise reduction methods and points out their vulnerability in noise reduction performance and speech quality, especially under the low signal-noise ratios (SNR) environments. Then this paper presents an improved perceptual multiband spectral subtraction (MBSS) noise reduction algorithm (NRA) and a novel robust voice activity detection (VAD) based on the amended sub-band SNR. The proposed SNR-based VAD can considerably increase the accuracy of discrimination between noise and speech frame. The simulation results show that the proposed NRA has better segmental SNR (segSNR) and perceptual evaluation of speech quality (PESQ) performance than other noise reduction algorithms especially under low SNR environments. In addition, a fully operational digital hearing aid chip is designed and fabricated in the 0.13 µm CMOS process based on the proposed NRA. The final chip implementation shows that the whole chip dissipates 1.3 mA at the 1.2 V operation. The acoustic test result shows that the maximum output sound pressure level (OSPL) is 114.6 dB SPL, the equivalent input noise is 5.9 dB SPL, and the total harmonic distortion is 2.5%. So the proposed digital hearing aid chip is a promising candidate for high performance hearing-aid systems.