Lexical tone is one of the most prominent features in the phonological representation of words in Chinese. However, little, if any, research to date has directly evaluated how young Chinese children's lexical tone identification skills contribute to vocabulary acquisition and character recognition. The present study distinguished lexical tones from segmental phonological awareness and morphological awareness in order to estimate the unique contribution of lexical tone in early vocabulary acquisition and character recognition. A sample of 199 Cantonese children aged 5-6 years was assessed on measures of lexical tone identification, segmental phonological awareness, morphological awareness, nonverbal ability, vocabulary knowledge, and Chinese character recognition. It was found that lexical tone awareness and morphological awareness were both associated with vocabulary knowledge and character recognition. However, there was a significant relationship between lexical tone awareness and both vocabulary knowledge and character recognition, even after controlling for the effects of age, nonverbal ability, segmental phonological awareness and morphological awareness. These findings suggest that lexical tone is a key factor accounting for individual variance in young children's lexical acquisition in Chinese, and that lexical tone should be considered in understanding how children learn new Chinese vocabulary words, in either oral or written forms.