Chunking is formalized as the dual process of building percepts by recognizing in stimuli chunks stored in memory, and creating new chunks by welding together those found in the percepts. As such it is a very attractive process with which to account for phenomena of perception and learning. Servan-Schreiber and Anderson (1990) demonstrated that chunking is at the root of the "implicit learning" phenomenon, and Servan-Schreiber (1990; 1991) extended that analysis to cover category learning as well. This paper aims to demonstrate the potential of chunking as a theory of perception by presenting a model of context effects in letter perception. Starting from a set of letter segments the model creates from experience chunks that encode partial letters, then letters, then partial words, and finally words. The model's ability to recognize letters alone, or in words, pseudo-words, or strings of unrelated letters is then tested using a backward masking task. The model reproduces the word and pseudoword superiority effects.