Background Cultural capital in families and especially, the educational level of parents, has during the last decades been found to be the most important dimension of socio‐economic influence on school performance. How the transmission of cultural capital over generations is concretized is however not yet fully investigated. Aims The aim is to unfold the influence of home background and more specifically, to reveal some important mediating factors between the educational levels of parents and the reading achievement levels of children. Sample Data comes from the Swedish participation in Progress in International Reading Literacy Study 2001 conducted by the The International Association for the Evaluation of Educational Achievement and comprises some 10,000 students in grade 3. Methods The effects of parents' education on reading achievement are estimated with structural equation modelling. Results The results reveal that the total effect of parents' education is substantial and that almost half of this effect is mediated through other variables, i.e. the number of books at home, early literacy activities, and emergent literacy abilities at the time for school start. The article thus identifies some of the mechanisms through which parents' education exert an influence on children's literacy development. Conclusions Cultural reproduction starts in the very early childhood, in informal settings where reading aloud is an important activity. The knowledge of written language that children have at the time for school‐start influences further reading acquisition.