The role of letters and syllables in typical and dysfluent 2nd grade reading in Finnish, a transparent orthography, was assessed by lexical decision and naming tasks. Typical readers did not show reliable word length effects in lexical decision, suggesting establishment of parallel letter processing. However, there were small effects of word syllable structure in both tasks suggesting the presence of some sublexical processing also. Dysfluent readers showed large word length effects in both tasks indicating decoding at the letterphoneme level. When lexical access was required in a lexical decision task, dyslexics additionally chunked the letters into syllables. Response duration measure revealed that dysfluent readers even sounded out the words in phoneme-by-phoneme fashion, depending on the task difficulty. This letter-byletter decoding is enabled by the transparent orthography and promoted by Finnish reading education.