Educators and researchers have long recognized the importance of mastering reading by the end of third grade. Students who fail to reach this critical milestone often falter in the later grades and drop out before earning a high school diploma. This study relies on a unique national database of 3,975 students born between 1979 and 1989. The children's parents were surveyed every two years to determine the family's economic status and other factors, while the children's reading progress was tracked using the Peabody Individual Achievement Test (PIAT) Reading Recognition subtest. The database reports whether students have finished high school by age 19, but does not indicate whether they actually dropped out. For purposes of this study, the researchers divided the children into three reading groups which correspond roughly to the skill levels used in the National Assessment of Educational Progress (NAEP): proficient, basic and below basic. The children were also separated into three income categories: those who have never been poor, those who spent some time in poverty and those who have lived more than half the years surveyed in poverty. The findings include: (1) One in six children who are not reading proficiently in third grade do not graduate from high school on time, a rate four times greater than that for proficient readers; (2) The rates are highest for the low, below-basic readers: 23 percent of these children drop out or fail to finish high school on time, compared to 9 percent of children with basic reading skills and 4 percent of proficient readers; (3) Overall, 22 percent of children who have lived in poverty do not graduate from high school, compared to 6 percent of those who have never been poor. This rises to 32 percent for students spending more than half of their childhood in poverty; (4) For children who were poor for at least a year and were not reading proficiently in third grade, the proportion that don't finish school rose to 26 percent. That's more than six times the rate for all proficient readers; (5) The rate was highest for poor Black and Hispanic students, at 31 and 33 percent respectively--or about eight times the rate for all proficient readers; (6) Even among poor children who were proficient readers in third grade, 11 percent still didn't finish high school. That compares to 9 percent of subpar third grade readers who have never been poor; (7) Among children who never lived in poverty, all but 2 percent of the best third-grade readers graduated from high school on time; and (8) Graduation rates for Black and Hispanic students who were not proficient readers in third grade lagged far behind those for White students with the same reading skills. Appended are: (1) Technical Notes; and (2) Percent Failing to Graduate from High School by Age 19, for Children by Third-Grade Reading Test Scores, by Race-Ethnicity, and by Poverty Experience. (Contains 6 figures and 22 endnotes.)