The study examines the impact of topic familiarity and passage sight vocabulary on lexical inferencing and retention. Independent variables include (a) a topic familiarity questionnaire, and (b) a passage sight vocabulary test. A repeated-measures design was used with a cross-sectional sample of 35 adult L2 learners of Spanish. Ss read narratives (1 more and 1 less familiar) containing nonsense words. They guessed meanings of target words and rated degree of difficulty in guessing. After reading all stories, all participants completed an inference verification task to confirm or correct guesses, and to encourage deeper processing of target words. This was followed by two measures of retention: (a) translation production, and (b) translation recognition. Analyses reveal (a) robust effects of topic familiarity and passage sight vocabulary on lexical inferencing, (b) a significant interaction between topic familiarity and passage sight vocabulary on difficulty in lexical inferencing, and (c) robust effects of passage sight vocabulary on lexical retention and a significant effect of topic familiarity on lexical retention--translation recognition measure. The discussion concerns the significance of findings for lexical inferencing, processing, and retention through strategic reading tasks.