The epidemiological studies of Chinese developmental dyslexia (DD) in China are still limited. In addition, literacy assessment has seldom been performed for children with dyslexia, due to lack of uniform assessment tools. This study was aimed at investigating the prevalence rate of children with dyslexia, and to evaluate their Chinese reading ability. A total of 2955 students aged 7–12 years were enrolled by randomized cluster sampling. The study was divided into three stages. In stage I, all participating students were asked to finish the Combined Raven Test (CRT) and Chinese Vocabulary Test and Assessment Scale. In stage II, the Chinese teachers and parents of the children with suspected dyslexia were interviewed by psychiatrists, and finished the Dyslexia Checklist for Chinese Children (DCCC). In stage III, these children were evaluated by child psychiatrists for the diagnosis with or without dyslexia, according to the fifth edition of Diagnostic and Statistical Manual of Mental Disorders (DSM-5), and their Chinese literacy was further evaluated by using the Chinese Reading Ability Test (CRAT). The prevalence rate of children with dyslexia was 5.4% in Shantou city, 8.4% in boys and 2.3% in girls, with a gender ratio of 3.7:1.0. Children with dyslexia scored lower in all the five subscales of the CRAT tests. including phonological awareness, morphological awareness, rapid automatized naming, orthographic awareness, and reading ability than the control group (all p < 0.001). This study suggested that the prevalence rate of Chinese dyslexia in Shantou city is roughly equivalent to that previously reported in China. Children with dyslexia have a relatively lower Chinese reading ability in all assessments.