Graphemes are commonly defined as the written representation of phonemes. For example, the word `BREAD' is composed of the four phonemes /b/, /r/, /e/ and /d/, and consequently, of the four graphemes `B', `R','EA', and `D'. Graphemes can thus be considered the minimal `functional bridges' in the mapping between orthography and phonology. In the present study we investigated the hypothesis that graphemes are processed as perceptual units by the reading system. If the reading system processes graphemes as units, then detecting a letter in a word should be harder when this letter is embedded in a multi-letter grapheme than when it corresponds to a single-letter grapheme. In Experiment 1A. done in English, participants were slower to detect a target letter in a word when the target letter was embedded in multi-letter grapheme (i.e,'A' in `BEACH') than when it corresponded to a single-letter grapheme (i.e. `A' in `PLACE'). In Experiment 1B, this effect was replicated in French. In Experiment 2, done in English, this grapheme effect remained when phonemic similarity between the target letter alone and the target letter inside the word was controlled. Together, the results are consistent with the assumption that graphemes are processed as perceptual reading units in alphabetic writing systems such as English or French. (C) 2000 Published by Elsevier Science B.V, All rights reserved.