This study explores emerging lexical processes that may be the foundation for children's acquisition of morphological knowledge and the relation of these processes to reading comprehension. First and third graders were given two tasks involving lexical analysis of morphologically complex words. Two years later, they were given a measure of processing derived words in sentence contexts and a test of reading comprehension. The results support the view that the development of morphological processing in the elementary years might depend on access to representations of full forms, base forms, and affixes. Further, semantic and syntactic knowledge of morphemes was related to morphological processing of sentences and contributed to reading comprehension in the late elementary years.