Across languages, children with developmental dyslexia have a specific difficulty with the neural representation of the sound structure (phonological structure) of speech. One likely cause of their difficulties with phonology is a perceptual difficulty in auditory temporal processing (Tallal, 1980). Tallal (1980) proposed that basic auditory processing of brief, rapidly successive acoustic changes is compromised in dyslexia, thereby affecting phonetic discrimination (e.g. discriminating /b/ from /d/) via impaired discrimination of formant transitions (rapid acoustic changes in frequency and intensity). However, an alternative auditory temporal hypothesis is that the basic auditory processing of the slower amplitude modulation cues in speech is compromised (Goswami et al., 2002). Here, we contrast children’s perception of a synthetic speech contrast (ba/wa) when it is based on the speed of the rate of change of frequency information (formant transition duration) versus the speed of the rate of change of amplitude modulation (rise time). We show that children with dyslexia have excellent phonetic discrimination based on formant transition duration, but poor phonetic discrimination based on envelope cues. The results explain why phonetic discrimination may be allophonic in developmental dyslexia (Serniclaes et al., 2004), and suggest new avenues for the remediation of developmental dyslexia.