BACKGROUND: Hearing voices occurs in middle childhood, but little is known about prevalence, aetiology and immediate consequences. AIMS: To investigate prevalence, developmental risk factors and behavioural correlates of auditory vocal hallucinations in 7- and 8-year-olds. METHOD: Auditory vocal hallucinations were assessed with the Auditory Vocal Hallucination Rating Scale in 3870 children. Prospectively recorded data on pre- and perinatal complications, early development and current problem behaviour were analysed in children with auditory vocal hallucinations and matched controls. RESULTS: The 1-year prevalence of auditory vocal hallucinations was 9%, with substantial suffering and problem behaviour reported in 15% of those affected. Prevalence was higher in rural areas but auditory vocal hallucinations were more severe and had greater functional impact in the urban environment. There was little evidence for associations with developmental variables. CONCLUSIONS: Auditory vocal hallucinations in 7- and 8-year-olds are prevalent but mostly of limited functional impact. Nevertheless, there may be continuity with more severe psychotic outcomes given the serious suffering in a subgroup of children and there is evidence for a poorer prognosis in an urban environment.