In this paper an acoustic echo compensator with an additional frequency domain adaptive filter for combined residual echo and noise reduction is proposed. The algorithm delivers high echo attenuation as well as high near end speech quality over a wide range of signal-to-noise conditions. The system makes use of a standard time domain echo compensator of low order, after which the proposed adaptive filter, which is motivated by means of a minimum mean square error approach, is placed in the sending path. In contrast to other combined systems [1, 2, 3], our method uses an explicit estimate of the power spectral density of the residual echo after echo compensation. The separate estimations of the power spectral densities of the residual echo and the background noise, respectively, are then flexibly combined, such that in the processed signal a low level of intentionally left background noise will effectively mask the residual echo.