In this experiment, the extent to which beginning readers process phonology during lexical identification in silent sentence reading was investigated. The eye movements of children aged seven to nine years and adults were recorded as they read sentences containing either a correctly spelled target word (e.g., girl), a pseudohomophone (e.g., gerl), or a spelling control (e.g., garl). Both children and adults showed a benefit from the valid phonology of the pseudohomophone, compared to the spelling control during reading. This indicates that children as young as seven years old exhibit relatively skilled phonological processing during reading, despite having moved past the use of overt phonological decoding strategies. In addition, in comparison to adults, children's lexical processing was more disrupted by the presence of spelling errors, suggesting a developmental change in the relative dependence upon phonological and orthographic processing in lexical identification during silent sentence reading.