We examined context-dependent encoding of speech in children with and without developmental dyslexia by measuring auditory brainstem responses to a speech syllable presented in a repetitive or variable context. Typically developing children showed enhanced brainstem representation of features related to voice pitch in the repetitive context, relative to the variable context. In contrast, children with developmental dyslexia exhibited impairment in their ability to modify representation in predictable contexts. From a functional perspective, we found that the extent of context-dependent encoding in the auditory brainstem correlated positively with behavioral indices of speech perception in noise. The ability to sharpen representation of repeating elements is crucial to speech perception in noise, since it allows superior "tagging" of voice pitch, an important cue for segregating sound streams in background noise. The disruption of this mechanism contributes to a critical deficit in noise-exclusion, a hallmark symptom in developmental dyslexia.