The ability to discriminate phonetically similar speech sounds is evident quite early in development. However, inexperienced word learners do not always use this information in processing word meanings [Stager & Werker (1997). Nature, 388, 381–382]. The present study used event-related potentials (ERPs) to examine developmental changes from 14 to 20 months in brain activity important in processing phonetic detail in the context of meaningful words. ERPs were compared to three types of words: words whose meanings were known by the child (e.g., “bear”), nonsense words that differed by an initial phoneme (e.g., “gare”), and nonsense words that differed from the known words by more than one phoneme (e.g., “kobe”). These results supported the behavioral findings suggesting that inexperienced word learners do not use information about phonetic detail when processing word meanings. For the 14-month-olds, ERPs to known words (e.g., “bear”) differed from ERPs to phonetically dissimilar nonsense words (e.g., “kobe”), but did not differ from ERPs to phonetically similar nonsense words (e.g., “gare”), suggesting that known words and similar mispronunciations were processed as the same word. In contrast, for experienced word learners (i.e., 20-month-olds), ERPs to known words (e.g., “bear”) differed from those to both types of nonsense words (“gare” and “kobe”). Changes in the lateral distribution of ERP differences to known and unknown (nonce) words between 14 and 20 months replicated previous findings. The findings suggested that vocabulary development is an important factor in the organization of neural systems linked to processing phonetic detail within the context of word comprehension.