In this study we explore the development of phonological and lexical reading in dyslexic children. We tested a group of 14 Italian children who have been diagnosed with dyslexia and whose reading age is end of grade 1. We compared this group with a group of 70 typically developing children who have been tested for reading at the end of grade 1. For each dyslexic child we also selected a participant who was attending the same grade, was close in age, and showed typical reading development when tested with a narrative passage reading task (Cornoldi, Colpo, & Gruppo MT, 1981) for correctness and reading speed. Children in this group are "same grade controls." We used a reading task consisting of 40 three syllables words. A qualitative and quantitative method of coding children's naming allowed us to distinguish several components of their reading performance: the grapheme and word recognition, the size of orthographic units involved in the aloud orthography-phonology conversion, the reading process used to recognize words. The comparison of the dyslexic group with the reading age and the same grade control groups reveals different trends of delayed reading processes. Considering dyslexic children's chronological age, lexical reading is greatly delayed. Considering dyslexic children's reading age, the type of reading process that is more deeply delayed is phonological reading. The rate of fragmented phonological reading (i.e., a type of syllabized phonological reading) is much higher in dyslexic children compared to the reading age group, suggesting that some factors undermine the possibility of internalizing the orthography-phonology conversion and the blending processes.