In developing countries, the role of the home environment in children's development of literacy skills is largely unknown. This study examines the relationship in a sample of 75 grade two children from rural eastern Tanzania. It also discusses the role of house building material and domestic facilities, in addition to parents' education and occupation, in describing socioeconomic status in developing countries in general, and in the current study. Most of the factors were significantly (ANOVA) related to phonological awareness and reading and writing. Hierarchical multiple regression analysis identified fathers' education and mothers' occupation as strong predictors. The home environment variables accounted for 25% of the variance in phonological awareness and 19% in reading and writing ability. Early screening and support of children in the risk zone of becoming poor readers are proposed. Activities like children's book projects and school library facilities are suggested, aiming at supporting literacy-related activities in low capacity homes.