In the present article, we report two eye-tracking experiments on how Chinese readers segment incremental words while reading Chinese. Incremental words are multicharacter words containing a subset of characters that constitute another word (referred to as the "embedded word"). For example, in a word containing three characters ABC (e.g., "[Chinese characters omitted]," meaning landlady), the first two characters AB ("[Chinese characters omitted]," meaning boss) constitute an embedded word. In the two experiments, Chinese readers read sentences with 3-character incremental words. In Experiment 1, the incremental words were always plausible, and the verbs prior to the target words were manipulated so that the embedded word of the incremental word was either plausible or implausible as an independent word. The eye-movement data showed that the plausibility manipulation did not influence the reading times on the incremental words nor their embedded words. In Experiment 2, we manipulated the plausibility of both incremental and embedded words. No plausibility effect of the embedded word was observed when the incremental words were plausible. However, the plausibility effect of the embedded word was obtained when the incremental words were implausible. These results suggest that Chinese readers tend to segment and integrate incremental words as a whole unit when they are plausible. However, when incremental words are implausible, the embedded words are segmented as independent words.