The developmental trajectory of the use of morphemes is still unclear. We investigated the emergence of morphological effects on visual word recognition in German in a large sample across the complete course of reading acquisition in elementary school. To this end, we analyzed lexical decision data on a total of 1,152 words and pseudowords from a large cross-sectional sample of German children from the beginning of Grade 2 through 6, and a group of adults. We expand earlier evidence by (a) explicitly investigating processing differences between compounds, prefixes and suffixes, (b) taking into account vocabulary knowledge as an indicator for interindividual differences. Results imply that readers of German are sensitive to morphology in very early stages of reading acquisition with trajectories depending on morphological type and vocabulary knowledge. Facilitation from compound structure comes early in development, followed by facilitation from suffixes and prefixes later on in development. This indicates that stems and different types of affixes involve distinct processing mechanisms in beginning readers. Furthermore, children with higher vocabulary knowledge benefit earlier in development and to a greater extent from morphology. Our results specify the development and functional role of morphemes as reading units.