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This thesis aims to systematically investigate the cognitive mechanisms thought to be involved in letter position processing and its development. Chapter 1 describes the theoretical framework upon which this thesis is based, as well as the motivation for the studies reported in chapters 2 through 5. Chapter 2 reports on a study that uses the masked transposed-letter (TL) priming tast to track the development of letter position coding in children learning to read (ages 7-12 years) as well as skilled adult readers. This study extends on previous research by disentangling changes in letter position coding from changes in letter identity. The results suggest that letter position coding becomes increasingly refined as reading develops. Chapter 3 investigates whether changes across development in sensitivity to letter position manipulations - such as those reported in chapter 2 - are driven by lexical development. This hypothesis is tested by investigating whether lexical skills influence masked TL priming effects in university students. The results show no significant relationship between lexical skill and TL priming. The study presented in chapter 4 adopts a novel variant of the Reicher-Wheeler task to further explore whether lexical development drives changes in sensitivity to letter position manipulations. In this task, participants are asked to report the identity of a letter at a specified position within three lexical contexts: anagram words (e.g. form - which has the anagram partner, from), pseudowords (e.g., pilf - plif) and illegal words (e.g., ftkl - fktl). The results suggest that lexical influences on letter position processing increase with development. Chapter 5 investigates the locus of impairment in three children with developmental letter position dyslexia, who were identified based on their excessive letter position errors (e.g., reading slime as "smile"). Participants' performance on various tasks, including reading aloud, lexical decision and same-different decision, is evaluated. The findings suggest that letter position dyslexia is most likely caused by a deficit to the positioning coding mechanism within the orthographic-visual analyser. Chapter 6 brings together the most important findings from the work reported in this thesis, and considers their implications for past and future studies investigating the development of letter position processing.