Purpose: The purpose of this study was twofold. First, we investigated whether first-grade children evidenced morphological awareness and whether they used their knowledge of morphological relations to guide their spelling. Second, we sought to determine whether children's morphological awareness abilities were predictive of their performance on word-level reading and spelling measures. Method: At the beginning of the academic school year, 43 first-grade children were administered an oral morphological awareness production task, a series of single-word morphological spelling tasks, and a battery of language and literacy tasks. Results: The first-grade children were able to generate words reflecting morphological relations before they received explicit instruction regarding morphological relations between words. In addition, the children used morphological information to guide their spelling of single words, as evidenced by a difference in patterns of spellings between 1- and 2-morpheme words. Regression analyses revealed that the children's performance on the oral morphological production task explained unique variance on their reading and spelling measures above and beyond the variance that was accounted for by phonological awareness. Conclusion: Children as young as first graders evidenced morphological awareness, and morphological awareness influenced the children's literacy development. Theoretical implications of the findings are discussed.