OBJECTIVES: This study is the first in a series designed to develop and norm new theoretically motivated sentence tests for children. The purpose was to examine the independent contributions of word frequency (i.e., how often words occur in language) and lexical density (the number of similar sounding words or "neighbors" to a target word) to the perception of key words in the new sentence set. DESIGN: Twenty-four children with normal hearing aged 5 to 12 yrs served as participants; they were divided into four equal age-matched groups. The stimuli consisted of 100 semantically neutral sentences that were 5 to 7 words in length. Each sentence contained 3 key words that were controlled for word frequency and lexical density. Words with few neighbors come from sparse neighborhoods, whereas words with many neighbors come from dense neighborhoods. The key words within a sentence belonged to one of the four lexical categories: (1) high-frequency sparse, (2) low-frequency dense, (3) high-frequency dense, and (4) low-frequency sparse. Participants were administered the sentence list and the 300 key words in isolation at 65 dB SPL. Each participant group was tested in spectrally matched noise at one of the four signal-to-noise ratios (SNRs -2, 0, 2, and 4 dB). The percent of words correctly identified was calculated as a function of SNR, key word context (sentences vs. words), and key word lexical category. RESULTS: SNR had a significant effect on the recognition of key words in sentences and in isolation; performance improved at higher SNRs. There were significant main effects of word frequency and lexical density as well as a significant interaction between the two lexical factors. In isolation, high-frequency words were recognized more accurately than low-frequency words. In both word and sentence contexts, sparse words yielded greater accuracy than dense words, irrespective of word frequency. There was a modest but significant negative correlation between lexical density and the recognition of words in isolation and in sentences. CONCLUSIONS: Word frequency and lexical density seem to influence word recognition independently in children with normal hearing. This is similar to earlier results in adults with normal hearing. In addition, there seems to be an interaction between the two factors, with lexical density being more heavily weighted than word frequency. These results give us further insight into the way children organize and access words from long-term lexical memory in a relational way. Our results showed that lexical effects were most evident at poorer SNRs. This may have important implications for assessing spoken-word recognition performance in children with sensory aids because they typically receive a degraded auditory signal.