This study of 4- to 6-year-olds had two aims. First to determine how lower-level comprehension skills (receptive vocabulary and grammar) and verbal memory support early higher-level comprehension skills (inference and literal story comprehension). Second to establish the predictive power of these skills on subsequent reading comprehension. Eighty-two children completed assessments of nonverbal ability, receptive vocabulary and grammar, verbal short-term memory, and inferential and literal comprehension of a picture book narrative. Vocabulary was a unique predictor of concurrent narrative comprehension. Longitudinally, inference skills, literal comprehension and grammar made independent contributions to reading comprehension one year later. The influence of vocabulary on reading comprehension was mediated through both inference and literal comprehension. The results show that inference skills are critical to the construction of text representations in the earliest stages of reading comprehension development.