A theory-based approach was used to investigate the relations among Nonsense Word Fluency (NWF) initial skill status in the fall of first grade, NWF growth across the school year, and end-of-year oral reading fluency and reading comprehension (RC) skill. Hypotheses were anchored to Perfetti's verbal efficiency theory and the role of automaticity in beginning decoding skill development. The sample consisted of 3,506 first-grade students in 50 schools. Results indicated a moderating effect of initial skill performance status on the relation between NWF gains and end-of-year reading fluency and RC. Strong, positive relations were found between NWF gains and ORF and RC scores for students who began the year with low to moderate and relatively high decoding skills. For students at the highest end of the distribution (5% of the sample), NWF gains were not associated with ORF or RC scores. In addition, early gains on NWF more strongly predicted reading outcomes than later gains for students at the low end of the initial NWF distribution. Implications for theories of early reading development and for school psychologist practice are discussed. (Contains 7 tables and 1 figure.)