Word segmentation, detecting word boundaries in continuous speech, is a fundamental aspect of language learning that can occur solely by the computation of statistical and speech cues. Fifty-four children underwent functional magnetic resonance imaging (fMRI) while listening to three streams of concatenated syllables that contained either high statistical regularities, high statistical regularities and speech cues, or no easily detectable cues. Significant signal increases over time in temporal cortices suggest that children utilized the cues to implicitly segment the speech streams. This was confirmed by the findings of a second fMRI run, in which children displayed reliably greater activity in the left inferior frontal gyrus when listening to 'words' that had occurred more frequently in the streams of speech they had just heard. Finally, comparisons between activity observed in these children and that in previously studied adults indicate significant developmental changes in the neural substrate of speech parsing.