We used magnetoencephalography to elucidate the cortical activation associated with the segmentation of spoken words in nonreading-impaired and dyslexic adults. The subjects listened to binaurally presented sentences where the sentence-ending words were either semantically appropriate or inappropriate to the preceding sentence context. Half of the inappropriate final words shared two or three initial phonemes with the highly expected semantically appropriate words. Two temporally and functionally distinct response patterns were detected in the superior temporal lobe. The first response peaked at approximately 100 msec in the supratemporal plane and showed no sensitivity to the semantic appropriateness of the final word. This presemantic N100m response was abnormally strong in the left hemisphere of dyslexic individuals. After the N100m response, the semantically inappropriate sentence-ending words evoked stronger activation than the expected endings in the superior temporal cortex in the vicinity of the auditory cortex. This N400m response was delayed for words starting with the same two or three first few phonemes as the expected words but only until the first evidence of acoustic-phonetic dissimilarity emerged. This subtle delay supports the notion of initial lexical access being based on phonemes or acoustic features. In dyslexic participants, this qualitative aspect of word processing appeared to be normal. However, for all words alike, the ascending slope of the semantic activation in the left hemisphere was delayed by approximately 50 msec as compared with control subjects. The delay in the auditory N400m response in dyslexic subjects is likely to result from presemantic-phonological deficits possibly reflected in the abnormal N100m response.