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In this study, we examined the influence of word-level phonological and lexical characteristics on early phoneme awareness. Typically-developing children, ages 61-78 months, completed a phoneme-based, odd-one-out task that included consonant-vowel-consonant word sets (e.g., “chair-chain-ship”) that varied orthogonally by a phonological characteristic, sound-contrast similarity (similar vs. dissimilar), and a lexical characteristic, neighborhood density (dense vs. sparse). In a subsample of the participants – those with the highest vocabularies – results were in line with a predicted interactive effect of phonological and lexical characteristics on phoneme awareness performance: word sets contrasting similar sounds were less likely to yield correct responses in words from sparse neighborhoods than words from dense neighborhoods. Word sets contrasting dissimilar sounds were most likely to yield correct responses regardless of the words’ neighborhood density. Based on these findings, theories of early phoneme awareness development should consider both word-level (e.g., phonological and lexical characteristics) and child-level (e.g., vocabulary knowledge) influences on phoneme awareness performance. Attention to these word-level item influences is predicted to result in more sensitive and specific measures of reading risk.