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Purpose:We examined the neurocognitive bases of lexical morphology in children of varied reading abilities to understand the role of meaning-based skills in learning to read with dyslexia. Method:Children completed auditory morphological and phonological awareness tasks during functional near-infrared spectroscopy neuroimaging. We first examined the relation between lexical morphology and phonological processes in typically developing readers (Study 1,N= 66,M_age= 8.39), followed by a more focal inquiry into lexical morphology processes in dyslexia (Study 2,N= 50,M_age= 8.62). Results:Typical readers exhibited stronger engagement of language neurocircuitry during the morphology task relative to the phonology task, suggesting that morphological analyses involve synthesizing multiple components of sublexical processing. This effect was stronger for more analytically complex derivational affixes (like + ly) than more semantically transparent free base morphemes (snow + man). In contrast, children with dyslexia exhibited stronger activation during the free base condition relative to derivational affix condition. Taken together, the findings suggest that although children with dyslexia may struggle with derivational morphology, they may also use free base morphemes' semantic information to boost word recognition. Conclusion:This study informs literacy theories by identifying an interaction between reading ability, word structure, and how the developing brain learns to recognize words in speech and print. Supplemental Material:https://doi.org/10.23641/asha.25944949