Previous event-related potential (ERP) research of auditory rhyming showed the classical phonological rhyming effect (N450) to be evident in children as young as 6 years of age (Coch, Grossi, Skendzel & Neville, in press). ERPs to spoken nonwords preceded by nonrhyming nonwords showed increased negativity (400-600ms post-stimulus-onset) in comparison to rhyming targets. This effect was largest at posterior medial sites bilaterally. Thus the previous research suggests that the neurocognitive networks involved in processing auditory rhyme information are comparable to adults by the age of 6. The current study extends this finding to even younger children aged 5 to 7 years who also show typical adult rhyming effects. However, more interestingly, younger children ages 3-4 did not show the same distribution of rhyming effects. A second ERP component commonly reported in rhyming tasks with adults is a slow contingent negative variation (CNV) in response to the first stimulus presented, thought to reflect phonological rehearsal. Unlike the N450 the CNV component has been shown to differ between adults and children age 6 to 8 (Coch et al, 2002; Coch et al, in press). The current study allowed us to address the development of this component at an even earlier age. The data provide further information regarding the development of rhyming skill in young children, thought to be fundamental to the acquisition of reading. Both rhyming and phonological rehearsal effects will be discussed in the frameworks of how phonological processing and awareness impact language and literacy development.