A growing literature has demonstrated that prosodic sensitivity is related to early literacy development; however, the precise nature of this relationship remains unclear. It has been speculated in recent theoretical models that the observed relationship between prosodic sensitivity and early literacy might be partially mediated by children's vocabulary knowledge, phonological awareness, and morphological awareness, although such models have yet to be confirmed using advanced statistical techniques. The study reported here uses covariance structure modeling to provide the first direct test of the model proposed by Wood, Wade-Woolley, and Holliman. We also test a modified version of this model that was designed to overcome some of the limitations in the original. Seventy-five 5-7-year-old English-speaking children completed a new measure of prosodic sensitivity and were also assessed for their vocabulary knowledge, phonological awareness, morphological awareness, word reading, and spelling. The results showed that Wood et al.'s model did not provide an adequate fit to our sample data; however, the new model, which permitted causal connections between the so-called mediator variables, provided an excellent fit. We argue that prosodic sensitivity should be afforded greater importance in models of literacy development, and offer a new theoretical model of the prosody-literacy relationship for future attempts at replication.