Neighborhood density influences adult performance on several word processing tasks. Some studies show age-related effects of density on children's performance, reflecting a developmental restructuring of the mental lexicon from holistic into segmental representations that may play a role in phonological awareness. To further investigate density effects and their implications for development of phonological awareness, we compared performance on dense and sparse onset words. We adapted these materials to three phonological awareness tests that were pretested on adults then administered to preschool children who were expected to vary in phonological awareness skills. For both the adults and the children who passed a phonological awareness screening task, dense onset neighborhoods were associated with slower reaction times and increased errors. A separate comparison of word repetition by the children who passed and who did not pass the phoneme awareness screening failed to provide evidence that lexical restructuring was a sufficient condition for the attainment of phonological awareness. Both groups of children more accurately repeated words from high onset density neighborhoods, regardless of the level of their phonological awareness. Thus, we find no evidence of either age- or ability-driven effects in children's performance, contradictory to a view that the attainment of phoneme awareness relates to developmental changes in the segmental representation of words in dense neighborhoods.