Current debate over the influence of phonological awareness on early reading development is polarised around small-unit (phoneme) processing and large-unit (onset-rime) processing. These opposing theories were contrasted by assessing the impact of pre-school phonological skills on reading amongst children experiencing their first year of formal instruction by a mixed method. Those beginning readers who could decode nonwords were found to have accomplished this by employing their letter-sound knowledge rather than by making analogies based on familiar rime units. Children displayed this pattern of performance regardless of their pre-school rhyming skills. Further investigations revealed that explicit awareness of onset and rime units was poor, even amongst children whose implicit rhyming skills were excellent. This evidence, together with the children's knowledge of orthographic units, was consistent with the view that letter-sound correspondences rather than onset or rime units formed the basis of their first attempts to utilise phonology in reading. The findings are discussed with reference to instructional influences on early reading and phonological awareness.