We examined spoken sentence comprehension in school-age children with developmental dyslexia or language impairment (LI), compared to age-matched and younger controls. Sentence–picture matching tasks were employed under three different working memory (WM) loads, two levels of syntactic difficulty, and two sentence lengths. Phonological short-term memory (STM) skills and their relation to sentence comprehension performance were also examined. When WM load was minimized, the LI group performed more poorly on the sentence comprehension task compared to the age-matched control group and the dyslexic group. Across groups, sentence comprehension performance generally decreased as the WM load increased, but this effect was somewhat more pronounced in the dyslexic group compared to the age-matched group. Moreover, both the LI and dyslexic groups showed poor phonological STM compared to the age-matched control group, and a significant correlation was observed between phonological STM and sentence comprehension performance under demanding WM loads. The results indicate subtle sentence processing difficulties in dyslexia that might be explained as resulting from these children's phonological STM limitations.