Cognitive processing of lexical and sub-lexical stimuli was compared for good and poor adult phonological decoders. Sixteen good decoders and 16 poor decoders, average age 19 years, silently read 150 randomly computer presented sentences ending in incongruous regular, irregular, or nonwords and 100 congruent filler sentences. Electro-encephalographic recordings were made from the final word of each incongruous sentence. Although no significant group differences were found, good decoders showed specialised hemispheric word recognition processing at P200 and P300. Nonwords elicited greater N200 and P300 amplitudes for both good and poor decoders. Larger amplitude P200s were elicited by poor decoders when processing nonwords. These findings provide evidence for separable lexical and sub-lexical procedures and support a psychophysiological basis for a core phonological deficit in poor phonological decoders.