Efforts to establish what psychological processes make up the framework through which beginning reading skills are developed led to this study, aimed at identifying perceptual, learning, cognitive, memory, and language variables which influence beginning reading of normal and educable mentally retarded children. A total of 172 first-grade subjects, 78 in the normal group and 94 in the retarded group, were chosen on the basis of Peabody Picture Vocabulary Test (PPVT) scores. These children, from 11 New York City schools, were also tested using the Metropolitan Achievement Tests (MAT), the Wide Range Achievement Tests (WRAT), and 17 readiness measures, all composed of verbal material. Factor analysis and other multiple regression procedures were used to analyze the data. Significant differences, attributable to the differences in mental age, were found between the two groups on almost all measures. Among the findings were that (1) auditory and visual skills were dominant for the retarded group, (2) only auditory skills were pertinent for the normal group, (3) a visual wordness subtest was the best predictor for the retarded group, and (4) a learning sample subtest correlated with skill acquisition for both groups. Tables and a 130-item bibliography are included. (MS)