In the present study, we explored the characteristics of morphological structure processing during word recognition among third grade Chinese children and its possible relationship with Chinese character reading. By using the modified priming lexical decision paradigm, a significant morphological structure priming effect was found in the subject analysis when reaction time difference was considered as dependent variable. In the regression analyses, the children's implicit morphological structure processing demonstrated a significant effect on Chinese character reading, even though its effect became non-significant when morphological awareness was entered. We achieved this result after controlling for the children's age, non-verbal intelligence, and phonological awareness. These findings indicate that third grade Chinese children are sensitive to morphological structure information in the processing of compound words. Moreover, such sensitivity is, to some extent, a good predictor of Chinese children's word reading performance.