Background: Research has established the link between morphological awareness and reading comprehension. However, the theoretical mechanisms underlying the association remain unclear. This study examined the direct and indirect effects of morphological awareness on reading comprehension in L1 Chinese and L2 English, with a sample of Chinese children who speak English as a second language (ESL). We tested theoretically driven predictions regarding the ways in which morphological awareness might impact reading comprehension. Methods: One hundred and fifty-six children in Grades 3 and 4 completed Chinese and English measures of morphological awareness (English: derivational awareness; Chinese: compound awareness), expressive vocabulary, word reading and reading comprehension, in addition to age, working memory and the other language's word definitions as control measures. Results: For both languages, analyses showed that morphological awareness had significant direct effects on both English and Chinese reading comprehension above and beyond mediators and control variables. In addition, morphological awareness had significant indirect effects on reading comprehension mediated by word reading (indirect path 1) as well as vocabulary and word reading in sequence (indirect path 2) after taking control variables into account. Vocabulary did not emerge as a mediator for either the English or the Chinese models. Conclusions: The results underscore the importance of morphology for reading comprehension and reveal the potential mechanisms that underpin their relations in L1 Chinese and L2 English. Our findings further specify the role of morphology in the reading systems framework and highlight the value of incorporating morphology into reading instruction for Chinese ESL children.