Background: This study examined the development of stress sensitivity and its relationship with word reading. Previous research has rarely measured phoneme and stress sensitivity in the same task, making a direct comparison of the contribution between the two in reading development difficult. Methods: Participants were native English-speaking adults and children at ages of 6, 8, and 10 years (N = 24, 22, 22, and 24, respectively). A lexical decision task was used to measure both stress and phoneme sensitivity. Oral vocabulary, phoneme awareness, and word reading were assessed. Results: Stress sensitivity accounted for unique variance in reading over and above vocabulary and phoneme awareness in 6-year-olds. Both adults and children had better phoneme sensitivity than stress sensitivity. Conclusions: These findings highlight the unique contribution of stress sensitivity in reading development. The current study made a novel contribution to studying the relationship between prosody and literacy by utilising a task that is able to assess children's stress and phoneme sensitivity simultaneously.