Purpose The main purpose of this study was to examine how children with isolated speech sound disorders (SSDs; n = 20), children with combined SSDs and language impairment (LI; n = 20), and typically developing children (n = 20), ages 3;3 (years;months) to 6;6, differ in narrative ability. The second purpose was to determine if early narrative ability predicts school-age (8–12 years) literacy skills. Method This study employed a longitudinal cohort design. The children completed a narrative retelling task before their formal literacy instruction began. The narratives were analyzed and compared for group differences. Performance on these early narratives was then used to predict the children’s reading decoding, reading comprehension, and written language ability at school age. Results Significant group differences were found in children’s (a) ability to answer questions about the story, (b) use of story grammars, and (c) number of correct and irrelevant utterances. Regression analysis demonstrated that measures of story structure and accuracy were the best predictors of the decoding of real words, reading comprehension, and written language. Measures of syntax and lexical diversity were the best predictors of the decoding of nonsense words. Conclusion Combined SSDs and LI, and not isolated SSDs, impact a child’s narrative abilities. Narrative retelling is a useful task for predicting which children may be at risk for later literacy problems.