Young adults with a history of specific language impairment (SLI) differ from reading-impaired (dyslexic) individuals in terms of limited vocabulary and poor verbal short-term memory. Phonological short-term memory has been shown to play a significant role in learning new words. We investigated the neural signatures of auditory word recognition and word repetition in young adults with SLI, dyslexia and normal language development using magnetoencephalography. The stimuli were 7-8 letter spoken real words and pseudo-words. They evoked a transient peak at 100 ms (N100m) followed by longer-lasting activation peaking around 400 ms (N400m) in the left and right superior temporal cortex. Both word repetition (first vs. immediately following second presentation) and lexicality (words vs. pseudowords) modulated the N400m response. An effect of lexicality was detected about 400 ms onwards as activation culminated for words but continued for pseudo-words. This effect was more pronounced in the left than right hemisphere in the control subjects. The left hemisphere lexicality effect was also present in the dyslexic adults, but it was non-significant in the subjects with SLI, possibly reflecting their limited vocabulary. The N400m activation between 200 and 700 ms was attenuated by the immediate repetition of words and pseudo-words in both hemispheres. In SLI adults the repetition effect evaluated at 200-400 ms was abnormally weak. This finding suggests impaired short-term maintenance of linguistic activation that underlies word recognition. Furthermore, the size of the repetition effect decreased from control subjects through dyslexics to SLIs, i.e. when advancing from milder to more severe language impairment. The unusually rapid decay of speech-evoked activation could have a detrimental role on vocabulary growth in children with SLI.