We present a longitudinal study of children in the first two years of learning to read. A battery of tests of phonological skills administered when the children were prereaders identified two distinct and relatively independent factors, Rhyming (defined by measures of rhyme detection and rhyme production) and Segmentation (defined by measures of phoneme identification and phoneme deletion). Segmentation was strongly correlated with attainment in reading and spelling at the end of the first year at school, though Rhyming was not. In addition, letter name knowledge predicted both reading and spelling skill and showed an interactive effect with children's segmentation skills. By the end of the second year of school, however, rhyming had started to exert a predictive effect of spelling, but not on reading. The results are discussed in the context of current theories of the role of phonological skills in learning to read.