Studies on the relation between children's reading motivation and early developmental stages of reading competence are rare and have neglected on-line measures of reading skill (e.g., eye movements indicating word decoding). For this reason, we investigated the effects of intrinsic and extrinsic reading motivation on the efficiency of reading processes based on eye-movement data. Moreover, we examined reading efficiency as a mediator of the relation between motivation and comprehension. German elementary school students in Grades 1-3 (N = 131) were tested on three measurement occasions. Specifically, we assessed reading motivation, reading amount, and sentence comprehension at Time 1, reading efficiency at Time 2 (2 months after Time 1), and all of the variables again at Time 3 (10 months after Time 2). Reading efficiency was assessed while children read age-appropriate sentences and comprised measures of first-fixation duration, gaze duration, total reading time, forward-saccade length, and refixation probability. Linear and cross-lagged panel models showed significant favorable relations between intrinsic reading motivation (operationalized as involvement and enjoyment of reading), but not extrinsic reading motivation (operationalized as striving to outperform one's peers), and most measures of reading efficiency, while controlling for gender, grade level, and reading amount. The reverse effects of reading-efficiency indicators on intrinsic reading motivation were all significant. Moreover, the test of the mediation model revealed a significant indirect effect of Time 1 intrinsic reading motivation on Time 3 sentence comprehension mediated by Time 2 reading efficiency. We concluded that intrinsic reading motivation, in contrast to extrinsic reading motivation, facilitates reading comprehension through its effect on reading efficiency, independent of variations in reading amount.