Phonological (speech sound) processing difficulties, including challenges with phoneme awareness, are core characteristics of developmental dyslexia. Categorical perception (CP) tasks, which assess the ability to organize the continuous acoustic speech signal into phoneme categories (e.g., /b/ vs /p/), provide insight into these challenges. CP is robust in humans, yet data from children with dyslexia are contradictory. While some studies report reduced CP in dyslexia, others report enhanced within-category discrimination, implying allophonic perception (sensitivity to phonetic variation within a category boundary). This study examines neural responses in a CP task among 4- to 5-year-old children with (at-risk, AR) and without (not-at-risk, NAR) familial risk for dyslexia, using the mismatch negativity (MMN) component. AR children exhibited MMNs to both within- and across-category contrasts, while NAR children demonstrated MMN only for across-category contrasts. These findings, consistent with allophonic perception in pre-reading AR children, align with the temporal sampling theory of developmental dyslexia.