Both behavioral and electrophysiological evidence suggests that fluent readers decompose morphologically complex words into their constituent parts. Previous event-related potential (ERP) research has been equivocal with regard to whether the N400 component indexes morphological decomposition or the integration of the products of decomposition, a process called semantic composition. In a visual lexical decision task with college students, we recorded ERPs to a well-controlled set of words and nonwords made up of bound morphemes (discern, predict; disject, percern) or free morphemes (cobweb, earring; cobline, bobweb) and monomorphemic control words and nonwords (garlic, minnow; gartus, buzlic). For each of the three morphological types, participants were faster to respond to words than to nonwords. Furthermore, for each of the three morphological types, the amplitude of the N400 was more negative to nonwords than to matched words, an effect indicating that the N400 is more sensitive to the lexicality of the whole stimulus than to the meaningfulness of the constituent parts of the stimulus. The N400 lexicality effect was not significantly different across the three morphological types. To our knowledge, this is the first ERP study to directly compare the processing of printed sets of words composed of bound and free morphemes and monomorphemic control stimuli in order to explore the relative sensitivity of the N400 to morphological decomposition (i.e., the status of the parts) and semantic composition (i.e., the status of the whole). Our findings are consistent with an interpretation of the N400 as an index of a process of semantic composition.