The present study assessed reading difficulties and cognitive impairments of German-speaking dyslexic children at grade levels 2, 3, and 4. It was found that German dyslexic children suffered from a pervasive speed deficit for all types of reading tasks, including text, high frequency words, and pseudowords, but at the same time showed generally rather high reading accuracy. For pseudowords, reading refusals or word responses were absent, and the majority of errors was close to the target pronunciation. Reading speed seemed to be most impaired for pseudowords and function words that did not allow the children to take a short-cut from phonemically mediated word processing. The discussion offers a developmental framework for the interpretation of these reading difficulties. For the cognitive tasks, dyslexic children did not differ from age-matched control children on the pseudoword repetition task or the digit span task, indicating that auditory perception and memory were not impaired. On phonological awareness tasks (rhyme oddity detection, vowel substitution, and pseudoword spelling), dyslexic children scored lower than age-matched control children, but not lower than younger reading-level control children. The performance of the dyslexic children on the phonemic segmentation tasks (pseudoword spelling and vowel substitution) was high in absolute terms. In contrast, marked differences between dyslexic and age-matched controls were found on rapid naming tasks: dyslexic grade 4 children showed lower numeral-naming speed than reading-level grade 2 children. Numeral-naming speed turned out to be the most important predictor of reading speed differences. These findings are discussed in relation to the phonological impairment explanation of dyslexia and to recent alternative explanations that posit an underlying impairment in automatizing skills which demand the fast execution of low-level cognitive processes.