This study investigated the relationship of teachers' reading knowledge with students' reading achievement using a direct teacher knowledge assessment rather than indirect proxies (e.g., certification). To address the inequitable distribution of teachers' knowledge resulting from differences in teachers' backgrounds and the disparities in how schools attract and cultivate knowledge, the study developed multilevel propensity score methods to identify comparable teachers on the basis of both teacher and school backgrounds. Results suggest that schools are complexly associated with differences in teachers' knowledge and that comparisons which ignore the relevance of schools may be misleading. By comparing teachers with similar personal and school backgrounds, results show measured knowledge is significantly associated with students' achievement in reading comprehension but not word analysis. The findings support policies which leverage school capacities to develop the specialized knowledge needed for teaching reading. (Contains 7 tables, 4 figures and 5 notes.)