This study examined how school-aged children process different grammatical categories. Event-related brain potentials elicited by words in visually presented sentences were analyzed according to seven grammatical categories with naturally varying characteristics of linguistic functions, semantic features, and quantitative attributes of length and frequency. The categories included nouns, adjectives, verbs, pronouns, conjunctions, prepositions, and articles. The findings indicate that by the age of 9-10 years, children exhibit robust neural indicators differentiating grammatical categories; however, it is also evident that development of language processing is not yet adult-like at this age. The current findings are consistent with the hypothesis that for beginning readers a variety of cues and characteristics interact to affect processing of different grammatical categories and indicate the need to take into account linguistic functions, prosodic salience, and grammatical complexity as they relate to the development of language abilities.