Aim: Basic verbal and academic skills can be adversely affected by early-onset diabetes, although these skills have been studied less than other cognitive functions. This study aimed to explore the mechanism of learning deficits in children with diabetes by assessing basic verbal and academic skills in children with early-onset diabetes and in comparison children. In addition, the incidence of dyslexia (less than or equal to 10th centile in reading speed or reading-spelling accuracy) was studied. Method: The performance of 51 children with early-onset diabetes (25 females, 26 males; mean age 9y 11mo, SD 4mo; range 9-10y) was compared with that of 92 children without diabetes (40 females, 52 males; mean age 9y 10mo, SD 3mo; range 9-10y) in the tasks of phonological processing, short-term memory, rapid automatized naming, reading, spelling, and mathematics. Results: The performance of children with diabetes was poorer than that of the comparison children in phonological processing (p = 0.001), spelling accuracy (p less than 0.001), and mathematics (p = 0.024). They learned to read later (p = 0.013), but reading performance and the incidence of dyslexia in the third grade (aged 9-10y) were similar in the two groups. Interpretation: Children with early-onset diabetes are prone to minor learning difficulties in their early school years as a result of deficits in phonological processing.