Sentence comprehension (SC) studies in typical and impaired readers suggest that reading for meaning involves more extensive brain activation than reading isolated words. Thus far, no reading disability/dyslexia (RD) studies have directly controlled for the word recognition (WR) components of SC tasks, which is central for understanding comprehension processes beyond WR. This experiment compared SC to WR in 29, 9-14 year olds (15 typical and 14 impaired readers). The SC-WR contrast for each group showed activation in left inferior frontal and extrastriate regions, but the RD group showed significantly more activation than Controls in areas associated with linguistic processing (left middle/superior temporal gyri), and attention and response selection (bilateral insula, right cingulate gyrus, right superior frontal gyrus, and right parietal lobe). Further analyses revealed this overactivation was driven by the RD group's response to incongruous sentences. Correlations with out-of-scanner measures showed that better word- and text-level reading fluency was associated with greater left occipitotemporal activation, whereas worse performance on WR, fluency, and comprehension (reading and oral) were associated with greater right hemisphere activation in a variety of areas, including supramarginal and superior temporal gyri. Results provide initial foundations for understanding the neurobiological correlates of higher-level processes associated with reading comprehension.