Two experiments were carried out to investigate the role of referential continuity in understanding discourse. In experiment 1, a group of university students listened to stories and descriptive passages presented in three different versions: the original passages, versions in which the sentences occured in a random order, and randomised versions in which referential continuity had been restored primarily by replacing pronouns and other terms with fuller and more appropriate noun phrases. The original stories were remembered better, and rated as more (...) comprehensible, than the random versions, but the restoration of referential continuity ameliorated the effects of randomisation. The descriptive passages had little referential continuity from one sentence to the next, and as expected the effects of randomisation on comprehensibility and memory were negligible. In experiment 2, a group of skilled comprehenders and a group of less skilled comprehenders were selected from a population of 7–8-year-old children. The difference between the groups was known to be largely their inferential ability in reading texts. Both groups read a series of short stories presented in the same three versions as used in the previous experiment. As predicted, the ameliorating effects on memory of restoring referential continuity in a randomised story were confined to the skilled group. The results are discussed in relation to the theories of story grammar, text microstructure, and mental models of discourse. (shrink)