The Discrepancy Hypothesis posits that childrenearly in the acquisition process read visually(holistically) and spell phonologically. Thisclaim was examined and rejected. Weinvestigated reading and spelling in Grade 1and Grade 2 children using controlled nonwordand word materials with a variety oforthographic patterns. While reading andspelling were strongly correlated even amongthe younger readers, discrepancies betweenperformance levels occurred in both directions. Children's responses were affected by wordcharacteristics and whether or not theyreceived school phonics instruction. Phonologically complex words, such as thosecontaining consonant clusters, wereparticularly difficult for Grade 1 children toread, while words that were difficult to spellcorrectly but not to read tended to havemultivalent mappings from sound to spelling.The generation of reading responses tospecially selected nonwords was affected byboth implicit and explicit phonological sourcesof knowledge. Orthographic knowledge gained inspelling did not always transfer to reading,and vice versa.