The development of phonological awareness (PA) before school age was modeled in association with the development of vocabulary and letter knowledge, home literacy environment (HLE), children's reading interest, and beginning reading skill in children with and without familial risk of dyslexia. A total of 186 children were followed from birth to the age of 6.5 years. Of these children, about half had a familial background of reading difficulties (the at-risk group), and the other half came from families without such background (the control group). The data from several measures and assessment time points were analyzed within an SEM framework, and a latent analysis of growth curves was employed. Vocabulary and letter knowledge were found to predict PA development, and vice versa, PA predicted them. The effect of HLE on PA was mediated by vocabulary skills, and of the HLE variables, the only variable predicting vocabulary development was shared reading. In spite of the difference in level, favoring the controls, the pattern of effects of vocabulary and letter knowledge on PA development was highly similar in children with and without familial risk for dyslexia. However, in the at-risk group, the HLE variables and children's reading interest had stronger associations with each other and with skill development than in the control group, and vocabulary predicted parental reports on children's reading interest in the at-risk group only.