The present study examined the development of phonological and reading skills in 171 students (98 males, 73 females) from the beginning of first grade (Time 1) to the end of second grade (Time 4). Based on their reading and intelligence scores at the end of second grade, these students were placed into nondisabled (ND), reading disabled (RD), or garden-variety poor reading (GV) groups. Although each group made gains in phonological processing, large differences were found between the ND and RD/GV groups. The RD and GV groups performed similarly on many of the tasks. Consistent with the literature, it was found that intelligence does not differentiate between good and poor readers. The most important finding of the present study was that reader-group membership at Time 4 could be very accurately determined from students' Time 1 scores. All of the children in the RD and GV groups were correctly identified, and only 3 of the 148 ND children were misclassified, indicating that children at risk for reading difficulties can be very accurately identified very early in their academic experiences.