Oral language skills and habits may serve as important resources for success or failure in school-related tasks such as learning to read. This article tests this hypothesis utilizing a unique data set, the original Woodcock-Johnson Psycho-Educational Battery-Revised norming sample. This article assesses the importance of oral language by focusing on auditory processing, a variable strongly affected by the oral language of the family and peer group within which the youth is raised. It estimates a structural equation model in which this variable, along with other measures of basic cognitive skills, serve as mediators between race and mother's schooling background and basic and advanced reading skill. The model fits very well, and the youth's basic skill at auditory processing is both a major determinant of basic reading success, and by far the most important of the mediating variables. In particular, for children ages 5 to 10, this measure accounts for much of the race effect, and for more than one half of the mother's education effect on reading. Research on the determinants of social inequality should pay greater attention to the central importance of family and peer group oral language in determining cognitive performance outcomes, particularly for elementary school aged children.