An event-related potential (ERP) experiment was conducted to investigate the development of orthographic and phonological processing during Chinese sentence reading between school children and adult readers. Participants were visually presented with sentences, word-by-word, and were asked to judge whether the sentences were semantically acceptable. The crucial manipulation was on the sentence-final two-character compound words, which were either correct or incorrect. For the incorrect compounds, the second characters of the base words were replaced by homophonic or orthographically similar characters. ERP results showed that, across participant groups, the peak of P200 appeared earlier for the homophonic condition than for the orthographic and the baseline conditions. Importantly, for both child and adult readers, relative to the baseline, both orthographic mismatch in the homophonic condition and phonological mismatch in the orthographic condition elicited N400 effects. While for adults these effects appeared to be equal in size, the peak of the N400 component appeared earlier for orthographic mismatch than for phonological mismatch. For children the N400 effect was larger for orthographic mismatch than for phonological mismatch. The N400 component was also more negative for children than for adults in the homophonic condition, and its peak appeared later for children than for adults in the homophonic and the baseline conditions. Moreover, the offset of the N400 effects appeared earlier for adults than for children and for orthographic mismatch than for phonological mismatch. These findings suggest that both Chinese adult readers and school children rely more on orthographic information than on phonological information to access lexical semantics in reading Chinese sentences. However, the differential effects between orthography and phonology may have different ERP manifestations in adults and children.