In the present study, we examined the early word decoding development of 73 children at genetic risk of dyslexia and 73 matched controls. We conducted monthly curriculum‐embedded word decoding measures during the first 5 months of phonics‐based reading instruction followed by standardized word decoding measures halfway and by the end of first grade. In kindergarten, vocabulary, phonological awareness, lexical retrieval, and verbal and visual short‐term memory were assessed. The results showed that the children at risk were less skilled in phonemic awareness in kindergarten. During the first 5 months of reading instruction, children at risk were less efficient in word decoding and the discrepancy increased over the months. In subsequent months, the discrepancy prevailed for simple words but increased for more complex words. Phonemic awareness and lexical retrieval predicted the reading development in children at risk and controls to the same extent. It is concluded that children at risk are behind their typical peers in word decoding development starting from the very beginning. Furthermore, it is concluded that the disadvantage increased during phonics instruction and that the same predictors underlie the development of word decoding in the two groups of children. Copyright © 2017 John Wiley & Sons, Ltd.