During literacy acquisition, children learn to match written and spoken language. Little is known about how this is achieved by children who grow up speaking a dialect. The present study examined literacy-related skills before school in 71 children (meanage: 7.61y) with a differing degree of exposure to Swiss-German (SwissG) dialect and tested their reading and spelling skills at the end of Grade 1. No differences in Grade 1 reading and spelling were found between groups of children with different SwissG exposure. Structural Equation Modelling (SEM) revealed that SwissG exposure was negatively associated with Grade 1 spelling and reading, when statistically controlling for early literacy-related-skills. At the same time, SwissG exposure was positively associated with early literacy-related skills that drive reading and spelling development. Thus, literacy acquisition in children speaking a dialect is characterised by disadvantages due to a linguistic mismatch, but also by compensatory advantages of higher metalinguistic skills.