Literacy levels in Africa are low, and school instruction outcomes are not promising. Africa also has a disproportionate number of unschooled children. Phonological awareness (PA), especially phoneme awareness, is critically associated with literacy, but there is little evidence about whether PA is gained through literacy, schooling, or both, because most children studied are in education and can read at least letters. Our previous study of PA and reading in children in and out of school in Tanzania found that PA was associated with reading ability, not schooling or age, and many unschooled children learned to read. We retested 85 children from the baseline study, on measures of PA and literacy, approximately 2 years later. We found that more unschooled children had now learned to read but PA had generally not improved for these children. Unschooled children were still poorer at PA than schooled children. At 2 years, schooling now independently predicted PA and literacy. PA also predicted literacy and vice versa. Explicit phoneme awareness was again poor, even in accurate readers. More unschooled children have now learned to read, possibly because local literacy is in their first language; however, schooling improves reading and PA.