Recent research has indicated that phonological neighbors speed processing in a variety of isolated word recognition tasks. Nevertheless, as these tasks do not represent how we normally read, it is not clear if phonological neighborhood has an effect on the reading of sentences for meaning. In the research reported here, we evaluated whether phonological neighborhood density influences reading of target words embedded in sentences. The eye movement data clearly revealed that phonological neighborhood facilitated reading. This was evidenced by shorter fixations for words with large neighborhoods relative to words with small neighborhoods. These results are important in indicating that phonology is a crucial component of reading and that it affects early lexical processing.