Derivational morphology is a cross-linguistically dominant mechanism for word formation, combining existing words with derivational affixes to create new word forms. However, the neurocognitive mechanisms underlying the representation and processing of such forms remain unclear. Recent cross-linguistic neuroimaging research suggests that derived words are stored and accessed as whole forms, without engaging the left-hemisphere perisylvian network associated with combinatorial processing of syntactically and inflectionally complex forms. Using fMRI with a “simple listening” no-task procedure, we reexamine these suggestions in the context of the root-based combinatorially rich Italian lexicon to clarify the role of semantic transparency (between the derived form and its stem) and affix productivity in determining whether derived forms are decompositionally represented and which neural systems are involved. Combined univariate and multivariate analyses reveal a key role for semantic transparency, modulated by affix productivity. Opaque forms show strong cohort competition effects, especially for words with nonproductive suffixes (ventura, “destiny”). The bilateral frontotemporal activity associated with these effects indicates that opaque derived words are processed as whole forms in the bihemispheric language system. Semantically transparent words with productive affixes (libreria, “bookshop”) showed no effects of lexical competition, suggesting morphologically structured co-representation of these derived forms and their stems, whereas transparent forms with nonproductive affixes (pineta, pine forest) show intermediate effects. Further multivariate analyses of the transparent derived forms revealed affix productivity effects selectively involving left inferior frontal regions, suggesting that the combinatorial and decompositional processes triggered by such forms can vary significantly across languages.