This study investigates response inhibition and its relationship to phonological processing in third-graders with and without dyslexia. Children with dyslexia (n = 20) and children without dyslexia (n = 16) were administered a stop signal task and a digit span forwards task. Initial analyses revealed phonological processing deficits in terms of a phonological short-term deficit in children with dyslexia but revealed no group differences with regard to performance on the stop signal task. There was no relationship between performance on the stop signal task and phonological short-term capacity for the group of children with dyslexia. In contrast, in the group of children without dyslexia, there was a tendency that better phonological short-term capacity was associated with faster primary reaction times on the stop signal task. Furthermore, better phonological short-term capacity was related to slower inhibitory processes among children without dyslexia. When controlling group--specifically for the effects of phonological short-term capacity on the performance on the stop signal task--we found slightly faster primary reaction times and significantly slower inhibitory processes in the group of children with dyslexia. Overall, these findings suggest the activation of phonological strategies during performance on the stop signal task in children without dyslexia but not in children with dyslexia. We discuss the possibility that in children without dyslexia, phonological processing strategies might have a beneficial effect on speed of response execution but might slow down response inhibition. (Contains 3 tables.)