The present study used the two-level testlet response model (MMMT-2) to assess impact, differential item functioning (DIF), and differential testlet functioning (DTLF) in a reading comprehension test. The data came from 21,641 applicants into English Masters' programs at Iranian state universities. Testlet effects were estimated, and items and testlets that were functioning differentially for test takers of different genders and majors were identified. Also parameter estimates obtained under MMMT-2 and those obtained under the two-level hierarchical generalized linear model (HGLM-2) were compared. The results indicated that ability estimates obtained under the two models were significantly different at the lower and upper ends of the ability distribution. In addition, it was found that ignoring local item dependence (LID) would result in overestimation of the precision of the ability estimates. As for the difficulty of the items, the estimates obtained under the two models were almost the same, but standard errors were significantly different.