A prime generated by transposing two internal letters (e.g., jugde) produces strong priming of the original word (judge). In lexical decision, this transposed-letter (TL) priming effect is generally weak or absent for nonword targets; thus, it is unclear whether the origin of this effect is lexical or prelexical. The authors describe the Bayesian Reader theory of masked priming (D. Norris & S. Kinoshita, 2008), which explains why nonwords do not show priming in lexical decision but why they do in the cross-case same-different task. This analysis is followed by 3 experiments that show that priming in this task is not based on low-level perceptual similarity between the prime and target, or on phonology, to make the case that priming is based on prelexical orthographic representation. The authors then use this task to demonstrate equivalent TL priming effects for nonwords and words. The results are interpreted as the first reliable evidence based on the masked priming procedure that letter position is not coded absolutely within the prelexical, orthographic representation. The implications of the results for current letter position coding schemes are discussed.