According to the rapid auditory processing theory, the ability to parse incoming auditory information underpins learning of oral and written language. There is wide variation in this low-level perceptual ability, which appears to follow a protracted developmental course. We studied the development of rapid auditory processing using event-related potentials (ERPs) elicited by tone pairs presented at varying inter-stimulus intervals (25, 50, 100, 200, and 400 ms) in a sample of children (N = 103) aged 7-9 years initially and again at 9-11 years. We also assessed their ability to repeat nonsense words at both time-points. The amount of difference between the ERP to single tones and paired tones (as assessed by the intra-class correlation coefficient, ICC) provided a measure of the brain's capacity to discriminate auditory information delivered at different presentation rates. Results showed that older children showed greater neural discrimination to tone pairs than younger children at rapid presentation rates, although these differences were reduced at slower presentation rates. The ICC at time 1 significantly predicted nonword repetition scores two years later, providing support for the view that rapid auditory temporal processing ability affects oral language development in typically developing children.