Parallel distributed processing (PDP) models of reading developed out of an appreciation of the role that context plays in letter and word perception. Adult readers can more accurately identify letters in a word than alone or in other random display contexts, a phenomenon known as the Word Superiority Effect (WSE). We examined the effects of orthographic context on the letter recognition skills of dyslexic children, comparing their performance to adults, and chronological- and reading-age matched groups. Consistent with previous studies, results showed adults better able to identify letters in the context of words and pseudowords than in random letter strings. Young normal readers demonstrated the WSE, but their pseudoword advantage was less than adults. The dyslexic children showed no WSE at all. PDP computer simulations for the experimental data using the Interactive Activation model (IA) suggested that the orthographic components of the lexical system of normal children are interactive and distributed as they are in adults but provide less bottom-up activation. In addition, top-down processing increases with age and reading skill, but may be absent for dyslexic readers.