First-grade children's reading, writing, and spelling competencies in 2 different instructional contexts for teaching phonics were examined. Reading, writing, and spelling abilities were measured at the beginning, middle, and end of 1st grade. Children were randomly assigned to 1 of 2 treatments designed to teach grapheme-phoneme correspondences, blending, and segmenting. In 1 treatment, children generated spellings for words, and in the other treatment, phonics instruction was embedded in literature. The spelling treatment was significantly better for spelling phonetically regular real and pseudowords, reading phonetically regular pseudowords, and written story length. It was also more beneficial for low-ability children's reading of connected text. There were no treatment effects on reading uncontrolled words in text. At the end of 5th grade, spelling-context children had significantly higher comprehension than did literature-context children. Discussion focuses on phonological processing while spelling and the effects of the instructional press of context-embedded and context-reduced instructional approaches in 1st grade.