We report three eye-movement experiments that investigated the effect of prior sentence context on the processing of overlapping ambiguous strings (OASs) during Chinese reading. An OAS is a Chinese character string (ABC) in which the middle character can form a distinct word with both the character on its left (word AB) and on its right (word BC). In three experiments, we manipulated the extent to which the right-side word (BC) was plausible as an immediate continuation following the prior context; the left-side word AB was always plausible given the prior context, and the sentence continued in a manner that was compatible with word AB. Compared with a less plausible word BC, first-pass reading times on the OAS were longer with a more plausible word BC. The results suggest that in reading of Chinese strings with ambiguous word boundaries, plausibility influences an early stage of competition between words, rather than only a later checking process that occurs after the initial segmentation.