The current study investigated whether vocabulary relates to phonetic categorization at neural level in early childhood. Electoencephalogram (EEG) responses were collected from 53 Dutch 20-month-old children in a passive oddball paradigm, in which they were presented with two nonwords “giep” [ɣip] and “gip” [ɣɪp] that were contrasted solely by the vowel. In the multiple-speaker condition, both nonwords were produced by twelve different speakers; while, in the single-speaker condition, one single token of each word was used as stimuli. Infant positive mismatch responses (p-MMR) were elicited in both conditions without significant amplitude differences. When the infants were median split based on vocabulary level, the large and small vocabulary groups showed comparable p-MMR amplitudes yet different scalp distribution in both conditions. These results suggest successful phonetic categorization of native similar sounding vowels at 20 months, and a close relationship between speech categorization and vocabulary development.