Background: Although children with speech disorder are at increased risk of literacy impairments, many learn to read and spell without difficulty. They are also a heterogeneous population in terms of the number and type of speech errors and their identified speech processing deficits. One problem lies in determining which preschool children with speech disorder will have difficulties acquiring literacy skills. Aims: Two studies are presented that investigate the relationship between speech disorders and literacy. The first examined the phonological awareness abilities of children with different types of speech difficulties. The second study investigated the literacy skills of children with a history of inconsistent speech disorder. Methods & Procedures: Experiment 1 measured the syllable segmentation, rhyme awareness and alliteration awareness of 61 preschool children: 46 with speech disorder (14 with delayed development, 17 who made consistent non-developmental errors, and 15 who made inconsistent errors) and 15 typically developing controls. Experiment 2 assessed the reading accuracy, spelling and phonological awareness abilities of nine 7-year-old children with a history of inconsistent phonological errors. Outcomes & Results: The first study indicated unexpected patterns of performance. While the Delayed group performed less well than controls on all tasks, the Consistent group showed poor performance on rhyme and alliteration but appropriate performance on syllable segmentation. The Inconsistent group performed most poorly on syllable segmentation but no differently from controls on the other two tasks. The second study indicated that children with a history of inconsistent phonological disorder performed no differently from controls on measures of phonological awareness and reading, but less well on measures of spelling ability. Conclusions: The results support classification of speech disorders and show a differentiation of phonological awareness skills across groups. Children with consistent atypical speech errors have poor phonological awareness and are most at risk for literacy difficulties. Those with inconsistent phonological disorder are at increased risk of spelling difficulties. The findings indicate that phonological awareness and spelling skill are distinct processing systems and highlight the role of phonological assembly skills (i.e. storing and/or retrieving phonological output plans) in spelling output. The interactive processes between reading and spelling are discussed. (Contains 7 tables and 1 figure.)