The present study examined the phonological memory capacity, rate of articulation, phonological-encoding, and perceptual-processing abilities of 13 well-defined, specifically language-impaired (SLI) children and 13 younger, language-matched normal (NL) children. The results of a nonsense word repetition task showed that SLI children repeated significantly fewer multisyllabic nonsense words than their NL peers. However, SLI and NL children were found to have comparable articulation rates, even when producing the longest nonsense word stimuli. Both SLI and NL children showed sensitivity to the phonological similarity effect, indicating that SLI children had intact phonological-encoding abilities. The results of a nonsense word discrimination task revealed that SLI children had greater difficulty perceptually processing 4-syllable nonsense words. Taken together, these findings were interpreted to be consistent with Gathercole and Baddeley's (1990) claim that SLI children have reduced phonological storage capacity. However, the capacity deficit account may require revision to include the possibility that the phonological storage deficit of some SLI children may have a perceptual basis (i.e., difficulty with processes related to item identification).