Summary.Children's knowledge of spelling was defined in terms which allowed similarity between errors and target words to be used to trace its development. In one study 48 children read material from their school reading scheme, arranged both in sentences and in word lists. The samples were collected in the early months of learning to read in school, before phonics instruction was introduced. In the second study samples were collected from time to time from 8 children during their first three years in school, during which time they received phonics instruction. In both studies error‐target similarity, measured in terms of number, order and position of identical letters, was found to increase with reading attainment. A strong first letter effect was noted. This development is interpreted in the light of reading strategies inferred from comparison between the reading of sentences and lists, and from observations of reading behaviour. It is concluded that, whilst reading aloud, considerable knowledge of spelling developed independently of the explicit use of phonics. The findings are discussed in relation to the literature on errors in initial reading and on visual and phonological paths to word recognition. It is suggested that the development of direct lexical access is a more systematic and complex matter than has perhaps been recognised, entailing considerable unconscious, automatic and interactive processing, and that first letter recognition is an important cue for initial readers, both for direct access and in the establishment of a phonological rout