Musical training confers advantages in speech-sound processing, which could play an important role in early childhood education. To understand the mechanisms of this effect, we used event-related potential and behavioral measures in a longitudinal design. Seventy-four Mandarin-speaking children aged 4-5 y old were pseudorandomly assigned to piano training, reading training, or a no-contact control group. Six months of piano training improved behavioral auditory word discrimination in general as well as word discrimination based on vowels compared with the controls. The reading group yielded similar trends. However, the piano group demonstrated unique advantages over the reading and control groups in consonant-based word discrimination and in enhanced positive mismatch responses (pMMRs) to lexical tone and musical pitch changes. The improved word discrimination based on consonants correlated with the enhancements in musical pitch pMMRs among the children in the piano group. In contrast, all three groups improved equally on general cognitive measures, including tests of IQ, working memory, and attention. The results suggest strengthened common sound processing across domains as an important mechanism underlying the benefits of musical training on language processing. In addition, although we failed to find far-transfer effects of musical training to general cognition, the near-transfer effects to speech perception establish the potential for musical training to help children improve their language skills. Piano training was not inferior to reading training on direct tests of language function, and it even seemed superior to reading training in enhancing consonant discrimination.