THE present study addresses phonological processing in children with developmental dyslexia. Following the hypothesis of a core deficit of assembled phonology in dyslexia a set of hierarchically structured tasks was applied that specifically control for different kinds of phonological coding (assembled versus addressed phonological strategies). Seventeen developmental dyslexics and 17 normal reading children were scanned during four different tasks: (1) passive viewing of letter strings (control condition), (2) passive reading of non-words, (3) passive reading of legal words, and (4) a task requiring phonological transformation. Statistical analysis of the data was performed using statistical parametric mapping (SPM96). Comparison of patterns of activation in dyslexic and normal reading children revealed significant differences in Broca's area and the left inferior temporal region for both, non-word reading and the phonological transformation task. The present data provide new evidence for alteration of the phonological system in dyslexic children, and in particular, the system that mediates assembled phonological coding.