This study used the lexicality effects on N400 to investigate orthographic processing in children with developmental dyslexia. Participants performed a Go/No-Go semantic judgment task; three types of stimuli--real characters (RC), pseudocharacters (PC), and noncharacters (NC)--were embedded in No-Go trials. Two types of lexicality effects (RC vs. NC and PC vs. NC) were used to reflect the sensitivity to Chinese orthographic knowledge. In typical developing children, NC elicited a more negative N400 in frontal sites and a less negative N400 in bilateral posterior sites than RC and PC. The reversed lexicality effects in anterior and posterior sites support the dual-mechanism for lexical retrieval. Children with dyslexia revealed a more negative N400 for NC in frontal sites compared with RC, suggesting that they remained sensitive to orthographic familiarity. However, no difference between NC and PC was observed, suggesting a weakness in capturing Chinese orthographic knowledge in children with dyslexia.