Lexical compounding refers to the process of word formation through union of lexicalized morphemes. Given that young Chinese readers learn print vocabulary as unanalyzed whole, I am uncertain whether children can effortlessly decompose bound morphemes from disyllabic words for lexical compounding to occur. With this concern, I propose a lexical blending process in parallel with lexical compounding, where words are constructed from previously learnt words that have not yet been decomposed as morphemes. This thesis investigated the mechanisms behind the lexical blending process, as well as its role in word reading among young Chinese readers, in five studies Studies One and Two examined the factors that favor lexical blending to occur. In Study One, I located a high proportion of disyllabic words and bound morphemes within a corpus of Chinese textbooks in Hong Kong. Around 40-50% of disyllabic words in Grade One to Grade Three are composed of one or more bound morphemes, which set a favorable environment for lexical blending to occur. In Study Two, I found that younger readers tended to commit more selection errors, defined as “naming the target character as a character that forms a highly frequent two-character compound word with it” (Shu, Meng, Chen, Luan and Cao, 2005), than older readers during character reading, suggesting that their representations of bound morphemes were not precise. An experiment on morpheme name judgment demonstrated that bound morphemes and low frequency morphemes embedded in high frequency words were most prone to selection errors. I further examined the lexical blending process and its contribution to reading development in Studies Three and Four. Adopting a cross-sequential design in Study Three, I found that lexical blending concurrently and longitudinally predicted Chinese word reading, after lexical compounding and other reading-related variables were partialled out. In Study Four, I located lexical class and structural relation knowledge as significant component skills of lexical blending. The process of lexical blending proceeded first with structural arrangement of words, followed by morphological decomposition and union of morphemes to eventually form a blended word. I also tested Chinese dyslexic readers’ performance on lexical blending in Study Five. Dyslexic readers exhibited difficulties in lexical blending and all the related component skills, when compared with chronological-age (CA) matched controls. Process-wise, the dyslexic readers were weaker than CA controls in both structural arrangement and morphological decomposition, while having particular difficulties in the latter process. I conclude that lexical blending is an important word formation process for young Chinese readers. To aid mastery of lexical blending, readers should be aware of the syntax in phrases and sentences, as it provides cues on structural arrangement of blended words. In addition, I suggest explicit instruction on lexical blending skills in the curriculum, with a particular focus on morphological decomposition, in order to meet the learning needs of dyslexic readers. / published_or_final_version / Psychology / Doctoral / Doctor of Philosophy