The activity level of the error monitoring system for processing isolated versus contextual words in Hebrew was studied in adults with dyslexia and skilled readers while committing reading errors. Behavioural measures and event-related potentials were measured during a lexical decision task using words in a list and sentences. Error-related negativity (ERN/Ne) potentials following reading errors and correct-related negativity for correct responses were detected in all conditions and participants. However, ERN/Ne amplitudes were smaller for those with dyslexia than for the skilled readers, and for reading sentences than for words in a list. These results support previous findings of lower activation of the error detection mechanism among dyslexics, and point to different activity levels for words and sentences. A theory on the underlying factors of dyslexia is proposed. (Contains 2 figures and 4 tables.)