Purpose: The aims of this study were to examine phonological short-term memory in children born preterm (PT) and to explore relations between this neuropsychological process and later language skills. Method: Children born PT (n = 74) and full term (FT; n = 60) participated in a nonword repetition (NWR) task at 36 months old. Standardized measures of language skills were administered at 36 and 54 months old. Group differences in NWR task completion and NWR scores were analyzed. Hierarchical multiple regression analyses examined the extent to which NWR ability predicted later performance on language measures. Results: More children born PT than FT did not complete the NWR task. Among children who completed the task, the performance of children born PT and FT was not statistically different. NWR scores at 36 months old accounted for significant unique variance in language scores at 54 months old in both groups. Birth group did not moderate the relation between NWR and later language performance. Conclusions: These findings suggest that phonological short-term memory is an important skill underlying language development in both children born PT and FT. These findings have relevance to clinical practice in assessing children born PT.