This study examined how Chinese native speakers (NSs) and second language (L2) learners process compound words. The findings showed that they used the hybrid model of coexistence for whole word and morphemes; and were influenced by word frequency, semantic transparency, and word structure. The results revealed that two groups of participants used hybrid representation when identifying high-frequency words and whole-word representation when identifying low-frequency words. Besides, semantic transparency might impact word structure awareness, and subject-predicate words were the most difficult to process. The research also showed that L2 learners' word frequency effect was more robust than NSs'; morpheme location information might affect NSs, but L2 learners could not process it. There was variation in NSs' speed in recognizing transparent and obscure words, but there was no difference among L2 learners. Besides, L2 learners' word recognition speed could not reach the levels of NSs.