This study examines morphological awareness in developmental dyslexia. While the poor phonological awareness of dyslexic children has been related to their difficulty in handling the alphabetical principle, less is known about their morphological awareness, which also plays an important part in reading development. The aim of this study was to analyze in more detail the implications of the phonological impairments of dyslexics in dealing with larger units of language such as morphemes. First, the performance of dyslexic children in a series of morphological tasks was compared with the performance of children matched on reading-level and chronological age. In all the tasks, the dyslexic group performed below the chronological age control group, suggesting that morphological awareness cannot be developed entirely independently of reading experience and/or phonological skills. Comparisons with the reading-age control group indicated that, while the dyslexic children were poorer in the morphemic segmentation tasks, they performed normally for their reading level in the sentence completion tasks. Furthermore, they produced more derived words in the production task. This suggests that phonological impairments prevent the explicit segmentation of affixes while allowing the development of productive morphological knowledge. A second study compared dyslexic subgroups defined by their degree of phonological impairment. Our results suggest that dyslexics develop a certain type of morphological knowledge which they use as a compensatory reading strategy.