Using event-related potentials (ERPs), we investigated the N400 (an ERP component that occurs in response to meaningful stimuli) in children aged 8-10 years old and examined relationships between the N400 and individual differences in listening comprehension, word recognition and non-word decoding. Moreover, we tested the claim that the N400 effect provides a valuable indicator of behavioural vocabulary knowledge. Eighteen children were presented with picture-word pairs that were either "congruent" (the picture depicted the spoken word) or "incongruent" (they were unrelated). Three peaks were observed in the ERP waveform triggered to the onset of the picture-word stimuli: an N100 in fronto-central channels, an N200 in central-parietal channels and an N400 in frontal, central and parietal channels. In contrast to the N100 peak, the N200 and N400 peaks were sensitive to semantic incongruency with greater peak amplitudes for incongruent than congruent conditions. The incongruency effects for each peak correlated positively with listening comprehension but when the peak amplitudes were averaged across congruent/incongruent conditions they correlated positively with non-word decoding. These findings provide neurophysiological support for the position that sensitivity to semantic context (reflected in the N400 effect) is crucial for comprehension whereas phonological decoding skill relates to more general processing differences reflected in the ERP waveform. There were no correlations between ERP and behavioural measures of expressive or receptive vocabulary knowledge for the same items, suggesting that the N400 effect may not be a reliable estimate of vocabulary knowledge in children aged 8-10 years.