Children with developmental dyslexia are characterized by phonological difficulties across languages. Classically, this ‘phonological deficit’ in dyslexia has been investigated with tasks using single‐syllable words. Recently, however, several studies have demonstrated difficulties in prosodic awareness in dyslexia. Potential prosodic effects in short‐term memory have not yet been investigated. Here we create a new instrument based on three‐syllable words that vary in stress patterns, to investigate whether prosodic similarity (the same prosodic pattern of stressed and unstressed syllables) exerts systematic effects on short‐term memory. We study participants with dyslexia and age‐matched and younger reading‐level‐matched typically developing controls. We find that all participants, including dyslexic participants, show prosodic similarity effects in short‐term memory. All participants exhibited better retention of words that differed in prosodic structure, although participants with dyslexia recalled fewer words accurately overall compared to age‐matched controls. Individual differences in prosodic memory were predicted by earlier vocabulary abilities, by earlier sensitivity to syllable stress and by earlier phonological awareness. To our knowledge, this is the first demonstration of prosodic similarity effects in short‐term memory. The implications of a prosodic similarity effect for theories of lexical representation and of dyslexia are discussed. © 2016 The Authors. Dyslexia published by John Wiley & Sons Ltd.