While reading, children use their morphological awareness to help facilitate word recognition; this awareness is anomalous in children with reading difficulty. I examined the morphological processing of 33 children; 13 with reading difficulty (RD) and 20 typical readers (TR). A lexical decision task was used to examine how orthographic and semantic word properties facilitate word recognition in these groups. Behavioural methods showed faster response times by both groups in conditions where primes reflected a morpho-semantic, compared to morpho-orthographic suffix type, and where primes were related to target words. Using electrophysiological measures, the power and oscillatory coupling were examined of three EEG brain frequencies, delta, theta, and gamma, to better understand the neural correlates reflecting morphological awareness during word recognition. While no group differences emerged in the behavioural results, electrophysiological results indicated neurological differences between groups, reader group differences in delta, theta and gamma power, as well as morphological condition differences in power. Most importantly, the examination of theta/gamma phase-amplitude coupling revealed reading ability differences, which provided evidence of the RD group’s greater use of top-down activation while segmenting morphologically complex words. This study helps refine our understanding of the neurocognitive mechanisms underlying morphological awareness abilities in children with RD and provides neurological evidence for their over-reliance on semantic properties during word recognition.