This study explores the morphosyntactic processing deficit in developmental dyslexia, addressing the on-going debate on the linguistic nature of the disorder, and directly testing the hypothesis that the deficit is based on underlying processing difficulties, such as acoustic and/or phonological impairments. Short German sentences consisting of a pronoun and a verb, either correct or containing a morphosyntactic violation, were auditorily presented to 17 German-speaking adults with dyslexia, and 17 matched control participants, while an EEG was recorded. In order to investigate the interaction between low-level phonological processing and morphosyntactic processing, the verbal inflections were manipulated to consist of different levels of acoustic salience. The event-related potential (ERP) results confirm altered morphosyntactic processing in participants with dyslexia, especially when morphosyntactic violations are expressed by both lexical and inflectional changes. Moreover, ERP data on phoneme discrimination and behavioural data on phonemic awareness and verbal short-term memory reveal phonological deficits in dyslexic participants. However, a causal relationship between phonological and morphosyntactic processing was not conclusive, because anomalous morphosyntactic processing in dyslexia is not directly mediated by acoustic salience, rather it correlates with high-level phonological skills and is mediated by lexical cues.