Neuroscientific evidence points toward atypical auditory processing in individuals with autism spectrum disorders (ASD), and yet, the consequences of this for receptive language remain unclear. Using magnetoencephalography and a passive listening task, we test for cascading effects on speech sound processing. Children with ASD and age-matched control participants (8-12 years old) listened to nonce linguistic stimuli that either did or did not conform to the phonological rules that govern consonant sequences in English (e.g. legal ‘vimp’ vs. illegal ‘vimk’). Beamformer source analysis was used to isolate evoked responses (0.1-30 Hz) to these stimuli in the left and the right auditory cortex. Right auditory responses from participants with ASD, but not control participants, showed an attenuated response to illegal sequences relative to legal sequences that emerged around 330 ms after the onset of the critical phoneme. These results suggest that phonological processing is impacted in ASD, perhaps because of cascading effects from disrupted initial acoustic processing.