Morpho-orthographic segmentation, rapid parsing of complex written words into their morphological components, is a potential source of difference in word recognition between struggling and typical readers. Although typical readers use morpho-semantic representations and morpho-orthographic segmentation in processing morphologically complex words, struggling readers typically rely on morpho-semantic processes involving coarse-grained processing of whole-word units rather than morpho-orthographic segmentation involving fine-grained letter processing. We tested this limitation in struggling readers, examining reading-ability differences among chronological-age, reading-age, and adult groups in morpho-orthographic segmentation in a primed lexical decision task. We transposed letter order across the morphological boundary of complex-word primes, focusing on disruption in priming effects of morphological and pseudo-orthographic primes that involved only orthographic overlap with target words. Morpho-semantic (coarse-grained) processing in Grade 2 typical readers was indicated by no moderation of priming effects by suffix types and letter transposition. By Grade 6, evidence of emerging fine grained analysis was found in both groups, with clear evidence of both coarse and fine grained analysis in adults. Grade 6 struggling readers showed comparable patterns of coarse and fine grained analysis as Grade 6 typical readers. Although they experienced generalized priming effects, struggling readers did experience response time disruption with transposed primes, indicating that they, like Grade 6 typical readers, adopt fine-grained processing perhaps as a precursor of emerging morpho-orthographic segmentation.