Adults process speech incrementally, rapidly identifying spoken words on the basis of initial phonetic information sufficient to distinguish them from alternatives. In this study, infants in the second year also made use of word-initial information to understand fluent speech. The time course of comprehension was examined by tracking infants' eye movements as they looked at pictures in response to familiar spoken words, presented both as whole words in intact form and as partial words in which only the first 300 ms of the word was heard. In Experiment 1, 21-month-old infants (N=32) recognized partial words as quickly and reliably as they recognized whole words; in Experiment 2, these findings were replicated with 18-month-old infants (N=32). Combining the data from both experiments, efficiency in spoken word recognition was examined in relation to level of lexical development. Infants with more than 100 words in their productive vocabulary were more accurate in identifying familiar words than were infants with less than 60 words. Grouped by response speed, infants with faster mean reaction times were more accurate in word recognition and also had larger productive vocabularies than infants with slower response latencies. These results show that infants in the second year are capable of incremental speech processing even before entering the vocabulary spurt, and that lexical growth is associated with increased speed and efficiency in understanding spoken language.