This study tested if children with specific language impairment (SLI) or children with specific reading disability (SRD) have abnormal brain responses to sounds. We tested 6- to 12-year-old children with SLI (N =19), children with SRD (N =55), and age-matched controls (N =36) for their passive auditory event-related potentials (ERPs) to tones, rapid tones, vowels and consonant-vowels. Thirty-eight percent of the children with SLI or SRD had less typical passive auditory ERPs in the N1–P2 window to sounds in general, rather than to tones, rapid tones, vowels or consonant-vowels specifically. The ERPs of these children were significantly ‘flatter’ in the N1–P2 region than normal. All the children with flatter ERPs in the N1–P2 region had poor non-word reading. A subgroup of these poor non-word readers also had poor non-word repetition. These findings support the hypothesis that impaired auditory processing is a causal risk factor for both SLI and SRD.