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I know it's possible to have an Airport Express create a wireless network by connecting it to my router (through enthernet cable).

But can it act as AirPlay at the same time?

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Yes, that is in fact the purpose of the AirPlay feature. Just plug it to your stereo or active speaker with the jack on the rear. A small "airplay" icon (see the example on the Apple homepage) will appear appear in iTunes or iPhone/iPad when you play music. You can then select whether you want your music on the Airport Express router or on your computer / iDevice.

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