Purpose: To compare the development of phonological skills in children with specific language impairment (SLI) with and without literacy delay and to examine whether kindergarten phonological skills could discriminate these 2 groups. Method: In a longitudinal study, 8 children with SLI and literacy delay, 10 children with SLI and normal literacy, and 14 typically developing children were studied from the last year of kindergarten to the start of Grade 3. A wide range of phonological tasks (phonological awareness [PA], verbal short-term memory [vSTM], and rapid automatized naming [RAN]) were administered yearly. Results: The SLI group with literacy delay scored significantly lower than the typically developing children on almost all phonological tasks in all grades, whereas the SLI group with normal literacy scored significantly lower only on demanding PA and vSTM tasks. A combination of kindergarten PA and RAN skills could correctly classify 75% of the children with SLI. By including vSTM, the discriminatory value did not increase. Conclusions: Children with SLI and normal literacy at age 8;1 [years;months] continued to have difficulties with demanding PA and vSTM tasks. Children with SLI and poor PA and RAN in kindergarten were at high risk of developing literacy problems in a transparent orthography.