To validate a group phonics test designed to measure students' phonics knowledge, a study examined possible causal relationships of phonics knowledge and sight word recognition, sight word fluency, general reading fluency, and reading comprehension. Subjects, 95 first graders, 95 second graders, and 95 third graders chosen at random from 3 schools with low, average, and high socio-economic populations, were tested. Relationships between phonics knowledge and the other reading variables were analyzed using a cross-lagged panel analysis. Results indicated that: (1) scores from a group phonics test and an individual phonics test were significantly related; (2) reading pseudowords was more difficult for the subjects than identifying pseudowords when read to them; (3) both phonics tests measured phonics knowledge, but at different levels of understanding; (4) correlations of both phonics test forms suggest that both were significantly related to word recognition and reading comprehension; (5) phonics knowledge was related to word recognition, fluency of reading, and reading comprehension; (6) the ability to read pseudowords accurately and fluently was related to both word recognition and reading comprehension; (7) word recognition was related to reading fluency and comprehension; and (8) both phonics knowledge and word recognition abilities developed predictably as children moved up through the grades. (RS)