The current study examined the nature of deaf readers' phonological processing during online word recognition, and how this compares to similar effects in hearing individuals. Unlike many previous studies on phonological activation, we examined whether deaf readers activated phonological representations for words as opposed to pseudohomophones. Both hearing and deaf adults performed lexical decisions on homophones and control words in the context of either pseudoword foils (e.g., CLANE) or pseudohomophone foils (e.g., BRANE). As expected, hearing readers responded more slowly to homophones than to control words in both non-word contexts, reflecting phonological activation during reading. In contrast, deaf readers responded more slowly to homophones than to control words in the pseudohomophone foil context, but not in the pseudoword foil context. This finding suggests that deaf readers are able to activate phonological representations; however the nature of these representations appears to be more coarse-grained in deaf readers.