This two-year, longitudinal study compared the spelling development of two novel English phonemes (/^<</ and /I,/) among 35Cantonese-speaking primary level children learning English as a second language (ESL) and37 English-speaking (L1) children. Developmental trend analyses suggest a similar developmental trajectory of spelling levels across time for ESL and L1 children. However, the spelling errors of the Chinese ESL children reflected difficulty in representing phonemes that are absent in Cantonese phonology, and this difficulty is not merely at the orthographic level. Poor phonological representation of the phoneme /I,/ of ESL children was also reflected in an auditory discrimination task. Nevertheless, this negative transfer did not persist across time. By the time they reached the end of grade 2,the performance of ESL children was very close to that of L1 children. A causal relationship is shown via cross-lagged correlations between auditory discrimination and spelling performance for both L1 and ESL children. These results suggest an interactive relationship between a general development of phonological and orthographic knowledge and an L1 transfer effect in second language spelling acquisition.