In. Experiment I subjects named target words that were preceded by a congruous sentence context, an incongruous sentence context, or no sentence context, under stimulus conditions that were either normal or degraded by contrast reduction. Under normal stimulus conditions, a contextual facilitation effect, but no contextual inhibition effect, was observed. When the target word was degraded, both contextual facilitation and inhibition were observed. Experiment 2 replicated the increase in contextual inhibition under degraded conditions and also demonstrated that inhibition increased as the interval between contextual processing and target-word onset was lengthened. The results were interpreted within the framework of the Posner and Snyder two-process theory of expectancy. Thus, when target-word recognition is rapid, only the fast-acting automatic activation component of context effects has time to operate. When target-word processing is delayed, the conscious-attention mechanism, which is responsible for inhibition effects, becomes operative. The relevance of these results to developmental investigations of the interaction of word recognition and contextual processing is discussed.