The temporal dynamics of processing morphologically complex words was investigated by recording event-related brain potentials (ERPs) when native Finnish-speakers performed a visual lexical decision task. Behaviorally, there is evidence that recognition of inflected nouns elicits a processing cost (i.e., longer reaction times and higher error rates) in comparison to matched monomorphemic words. We aimed to reveal whether the processing cost stems from decomposition at the early visual word form level or from re-composition at the later semantic-syntactic level. The ERPs showed no early effects for morphology, but revealed an interaction with word frequency at a late N400-type component, as well as a late positive component that was larger for inflected words. These results suggest that the processing cost stems mainly from the semantic-syntactic level. We also studied the features of the morphological decomposition route by investigating the recognition of pseudowords carrying real morphemes. The results showed no differences between inflected vs. uninflected pseudowords with a false stem, but differences in relation to those with a real stem, suggesting that a recognizable stem is needed to initiate the decomposition route.