The present paper examines the processing of speech by dyslexic readers and compares their performance with that of age-matched (CA) and reading-ability-matched (RA) controls. In Experiment 1, subjects repeated single-syllable stimuli (words and nonwords) presented either in a favorable signal-to-noise ratio or with noise masking. Noise affected all subjects to the same extent. Dyslexic children performed as well as controls when repeating high-frequency words, but they had difficulty relative to CA-controls with low-frequency words and relative to both CA- and RA-controls when repeating nonwords. In Experiments 2 and 3, subjects made auditory lexical decisions about the stimuli presented in Experiment 1. Dyslexics performed less well than CA-controls, gaining similar scores to RA-controls. Thus, their difficulty in repeating low-frequency words could be reinterpreted as a difficulty with nonword repetition. Taken together, these results suggest that dyslexics have difficulty with the nonlexical procedures (including phoneme segmentation) involved in verbal repetition. One consequence is that they take longer to consolidate "new" words; verbal memory and reading processes are also compromised.