Dynamic assessment (DA) of word reading measures learning potential for early reading development by documenting the amount of assistance needed to learn how to read words with unfamiliar orthography. We examined the additive value of DA for predicting first-grade decoding and word recognition development while controlling for autoregressive effects. Additionally, we examined whether predictive validity of DA would be higher for students who have poor phonological awareness skills. First-grade students (n = 105) were assessed on measures of word reading, phonological awareness, rapid automatized naming, and DA in the fall and again assessed on word reading measures in the spring. A series of planned, moderated multiple regression analyses indicated that DA made a significant and unique contribution in predicting word recognition development above and beyond the autoregressor, particularly for students with poor phonological awareness skills. For these students, DA explained 3.5% of the unique variance in end-of-first-grade word recognition that was not attributable to autoregressive effect. Results suggest that DA provides an important source of individual differences in the development of word recognition skills that cannot be fully captured by merely assessing the present level of reading skills through traditional static assessment, particularly for students at risk for developing reading disabilities.