Although there is evidence for a close link between early phonological skills and the development of vocabulary and decoding abilities, it is less clear which factors modulate the development of phonological skills. This study longitudinally explored the relation of contextual family variables on the development of phonological skills in 104 children aged 5 years. Children were tested on phonological short-term memory and phonological awareness before entering first grade (Time 1); these same phonological subskills, jointly with vocabulary and word decoding abilities, were assessed 1 year later (Time 2). Parents provided information about stress level and home literacy activities in Time 1. Structural equation models (SEM) reflected a relation between parental stress and phonological subskills at Time 1, which modulated the development of phonological subskills and vocabulary and word decoding at Time 2. These findings demonstrate that parental stress is negatively associated to the emergence of phonological subskills involved in the development of vocabulary and decoding abilities in childhood.