The current study used the orthographic rime frequency effect as a means of investigating the development of, and individual differences in, children's ability to use orthographic rimes as functional units of reading. Sets of pseudowords were constructed, varying in the frequency of their constituent orthographic rimes. Experiment 1 investigated the orthographic rime frequency effect in a large sample of first-grade children. As expected, the orthographic rime frequency effect was significant only in relatively advanced first-grade readers. Experiment 2 used a reading-level design to further investigate the orthographic rime frequency effect as a function of both age and word identification ability. Pseudoword reading accuracy was examined in poor fourth-grade readers, a younger reading-level-matched group, and a chronological age control group. Strong main effects were observed for reader group and orthographic rime frequency but these factors did not interact. Overall, these two experiments suggest that the size of the orthographic rime frequency effect reflects the operation of two factors that increase with reading ability, the size of children's sight vocabulary (contributing primarily to the availability of orthographic rime correspondences to read pseudowords constructed from relatively common orthographic rimes), and grapheme-phoneme conversion skill (contributing primarily to the decoding of pseudowords constructed from uncommon orthographic rimes for which orthographic rime correspondences are less likely to be derived from the sight word vocabulary). In addition, Experiment 2 implicated a general phonological recoding deficit as an underlying problem in children's word reading difficulties. (C) 1994 Academic Press, Inc.