Musical training has long been argued to boost early phonological and reading abilities. Cortical tracking of speech (CTS) has been proposed as a mechanism for this music-to-literacy transfer. In this study, we examined how musical training shapes CTS in young readers and whether it facilitates literacy benefits. In a sample of 57 children aged 5-9, musical training was linked to enhanced reading and phonological awareness (PA). EEG during story listening revealed that higher left-hemispheric and lower right-hemispheric CTS were also associated with higher reading scores. However, children with higher musicality exhibited stronger reading skills at lower levels of left-hemispheric CTS, suggesting more adult-like speech analysis. Critically, PA mediated the relationship between musicality and reading: greater musicality was associated with stronger PA, which in turn predicted higher reading performance, independent of demographic and cognitive factors. These findings indicate that musical training supports literacy by enhancing PA and shaping left-lateralized speech processing.