This study examined the relationship between speech difficulties at school entry and problems learning to read. We test the hypothesis that phonological skills explain the relationship between speech and reading difficulties. Speech skills were assessed in a large (N = 569) unselected sample of 5-year old children just after school entry. Children also completed a wide range of tasks measuring oral language (expressive vocabulary, receptive grammar and listening comprehension), reading and reading-related skills (single word reading, letter-sound knowledge, phoneme awareness, rapid automatized naming) and non-verbal IQ. Assessments were repeated six months later. Speech difficulties were identified in 6.88% of children. Speech difficulties were associated with poorer non-verbal IQ, oral language and reading relative to children without speech difficulties. A mediation model demonstrated that the relationship between speech difficulties and later reading was entirely mediated by phoneme awareness. Speech difficulties at school entry are related to problems in acquiring phoneme awareness which in turn are associated with problems in learning to read. Clinically, our results imply that any child who has a speech difficulty at school entry should be assessed and monitored for broader oral language difficulties and for delays in reading development with a view to providing early intervention to ameliorate such difficulties.