Speech processing skills go through intensive development during mid-childhood, providing basis also for literacy acquisition. The sequence of auditory cortical processing of speech has been characterized in adults, but very little is known about the neural representation of speech sound perception in the developing brain. We used whole-head magnetoencephalography (MEG) to record neural responses to speech and nonspeech sounds in first-graders (7–8-year-old) and compared the activation sequence to that in adults. In children, the general location of neural activity in the superior temporal cortex was similar to that in adults, but in the time domain the sequence of activation was strikingly different. Cortical differentiation between sound types emerged in a prolonged response pattern at about 250 ms after sound onset, in both hemispheres, clearly later than the corresponding effect at about 100 ms in adults that was detected specifically in the left hemisphere. Better reading skills were linked with shorter-lasting neural activation, speaking for interdependence of the maturing neural processes of auditory perception and developing linguistic skills. This study uniquely utilized the potential of MEG in comparing both spatial and temporal characteristics of neural activation between adults and children. Besides depicting the group-typical features in cortical auditory processing, the results revealed marked interindividual variability in children. Hum Brain Mapp, 2011. © 2011 Wiley Periodicals, Inc.