Purpose: A growing body of research suggests that a deficit in speech perception abilities contributes to the development of speech sound disorder (SSD). However, little work has been done to characterize the neurophysiological processes indexing speech perception deficits in this population. The primary aim of this study was to compare the neural activity underlying speech perception in young children with SSD and with typical development (TD). Method: Twenty-eight children ages 4;1-6;0 (years;months) participated in this study. Event-related potentials (ERPs) were recorded while children completed a speech perception task that included phonetic (speech sound) and lexical (meaning) matches and mismatches. Groups were compared on their judgment accuracy for matches and mismatches as well as the mean amplitude of the phonological mapping negativity (PMN) and N400 ERP components. Results: Children with SSD demonstrated lower judgment accuracy across the phonetic and lexical conditions compared to peers with TD. The ERPs elicited by lexical matches and mismatches did not distinguish the groups. However, in the phonetic condition, the SSD group exhibited a more consistent left-lateralized PMN effect and a delayed N400 effect over frontal sites compared to the TD group. Conclusions: These findings provide some of the first evidence of a delay in the neurophysiological processing of phonological information for young children with SSD compared to their peers with TD. This delay was not present for the processing of lexical information, indicating a unique difference between children with SSD and with TD related to speech perception of phonetic errors.