Developmental dyslexia is characterized by severe reading and spelling difficulties that are persistent and resistant to the usual didactic measures and remedial efforts. It is well established that a major cause of these problems lies in poorly specified phonological representations. Many individuals with dyslexia also present impairments in auditory temporal processing and speech perception, but it remains debated whether these more basic perceptual impairments play a role in causing the reading problem. Longitudinal studies may help clarifying this issue by assessing preschool children before they receive reading instruction and by following them up through literacy development. The current longitudinal study shows impairments in auditory frequency modulation (FM) detection, speech perception and phonological awareness in kindergarten and in grade 1 in children who receive a dyslexia diagnosis in grade 3. FM sensitivity and speech-in-noise perception in kindergarten uniquely contribute to growth in reading ability, even after controlling for letter knowledge and phonological awareness. These findings indicate that impairments in auditory processing and speech perception are not merely an epiphenomenon of reading failure. Although no specific directional relations were observed between auditory processing, speech perception and phonological awareness, the highly significant concurrent and predictive correlations between all these variables suggest a reciprocal association and corroborate the evidence for the auditory deficit theory of dyslexia. (Contains 3 figures and 3 tables.)