We employ a single-trial correlational MEG analysis technique to investigate early processing in the visual recognition of morphologically complex words. Three classes of affixed words were presented in a lexical decision task: free stems (e.g., taxable), bound roots (e.g., tolerable), and unique root words (e.g., vulnerable, the root of which does not appear elsewhere). Analysis was focused on brain responses within 100–200 msec poststimulus onset in the previously identified letter string and visual word-form areas. MEG data were analyzed using cortically constrained minimum-norm estimation. Correlations were computed between activity at functionally defined ROIs and continuous measures of the words' morphological properties. ROIs were identified across subjects on a reference brain and then morphed back onto each individual subject's brain (n = 9). We find evidence of decomposition for both free stems and bound roots at the M170 stage in processing. The M170 response is shown to be sensitive to morphological properties such as affix frequency and the conditional probability of encountering each word given its stem. These morphological properties are contrasted with orthographic form features (letter string frequency, transition probability from one string to the next), which exert effects on earlier stages in processing (∼130 msec). We find that effects of decomposition at the M170 can, in fact, be attributed to morphological properties of complex words, rather than to purely orthographic and form-related properties. Our data support a model of word recognition in which decomposition is attempted, and possibly utilized, for complex words containing bound roots as well as free word-stems.