The morphosyntactic decomposition of German compound words and a proposed function of linking elements were examined during auditory processing using event-related brain potentials. In Experiment 1, the syntactic gender agreement was manipulated between a determiner and the initial compound constituent (the “nonhead” constituent), and between a determiner and the last constituent (“head”). Although only the head is (morpho)syntactically relevant in German, both constituents elicited a left-anterior negativity if its gender was incongruent. This strongly suggests that compounds are morphosyntactically decomposed. Experiment 2 tested the function of those linking elements which are homophonous to plural morphemes. It has been previously suggested that these indicate the number of nonhead constituents. The number agreement was manipulated for both constituents analogous to Experiment 1. Number-incongruent heads, but not nonhead constituents, elicited an N400 and a subsequent broad negativity, suggesting that linking elements are not processed as plural morphemes. Experiment 3 showed that prosodic cues (duration and fundamental frequency) are employed to differentiate between compounds and single nouns and, thereby, betwen linking elements and plural morphemes. Number-incongruent words elicited a broad negativity if they were produced with a single noun prosody; the same words elicited no event-related potential effect if produced with a compound prosody. A dual-route model can account for the influence of prosody on morphosyntactic processing.