Phonological awareness, knowledge that speech is composed of syllables and phonemes, is critical for learning to read. Phonological awareness precedes and predicts successful transition from language to literacy, and weakness in phonological awareness is a leading cause of dyslexia, but the brain basis of phonological awareness for spoken language in children is unknown. We used functional magnetic resonance imaging to identify the neural correlates of phonological awareness using an auditory word-rhyming task in children who were typical readers or who had dyslexia (ages 7-13) and a younger group of kindergarteners (ages 5-6). Typically developing children, but not children with dyslexia, recruited left dorsolateral prefrontal cortex (DLPFC) when making explicit phonological judgments. Kindergarteners, who were matched to the older children with dyslexia on standardized tests of phonological awareness, also recruited left DLPFC. Left DLPFC may play a critical role in the development of phonological awareness for spoken language critical for reading and in the etiology of dyslexia.