The present study tested a path diagram regarding the contribution of morphological awareness (MA) to early literacy acquisition among Chinese-speaking second graders (N = 123). Three facets of MA were addressed, namely derivational awareness, compound awareness and compound structure awareness. The model aimed to test a theory of causal order among measures of MA and literacy outcomes. Drawing upon multivariate path analysis, direct and indirect effects of MA were analyzed to identify their role in literacy performance among young children. Results revealed that all three facets of MA made significant contributions to lexical inference ability. In addition, compound awareness showed a unique and significant contribution to vocabulary knowledge. It was also observed that lexical inference ability had a mediating effect predictive of both vocabulary knowledge and reading comprehension. Moreover, vocabulary knowledge mediated the effect of MA on reading comprehension. However, no significant contribution of MA to reading comprehension was found after controlling for lexical inference ability and vocabulary knowledge.