Developmental dyslexia is consistently associated with difficulties in processing phonology (linguistic sound structure) across languages. One view is that dyslexia is characterised by a cognitive impairment in the “phonological representation” of word forms, which arises long before the child presents with a reading problem. Here we investigate a possible neural basis for developmental phonological impairments. We assess the neural quality of speech encoding in children with dyslexia by measuring the accuracy of low-frequency speech envelope encoding using EEG. We tested children with dyslexia and chronological age-matched (CA) and reading-level matched (RL) younger children. Participants listened to semantically-unpredictable sentences in a word report task. The sentences were noise-vocoded to increase reliance on envelope cues. Envelope reconstruction for envelopes between 0 and 10 Hz showed that the children with dyslexia had significantly poorer speech encoding in the 0–2 Hz band compared to both CA and RL controls. These data suggest that impaired neural encoding of low frequency speech envelopes, related to speech prosody, may underpin the phonological deficit that causes dyslexia across languages.