Seventy-two children, 18 from each of grades three, six, nine, and twelve, participated in a study of developmental changes in children's knowledge about the morphological structures underlying the spoken form of complex derived words. Three oral language tests were used to show when and how children learn that derived words are not unanalyzable wholes but, rather, can be derived by regular phonological rules, from underlying (base) morphemic constituents. Two standardized reading tests and two experimenter-designed oral reading tests were used to investigate the relationships between knowledge of derived-word formation processes and reading. The oral language tests showed differences in the phonological competence of children between the ages of 8 and 17; these differences were related to children's performance on specific reading tasks. (Author/AA)