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This study investigated how gifted children with dyslexia might be able to mask literacy problems and the role of possible compensatory mechanisms. The sample consisted of 121 Dutch primary school children that were divided over four groups (typically developing [TD] children, children with dyslexia, gifted children, gifted children with dyslexia). The test battery included measures of literacy (reading/spelling) and cognitive abilities related to literacy and language (phonological awareness [PA], rapid automatized naming [RAN], verbal short-term memory [VSTM], working memory [WM], grammar, and vocabulary). It was hypothesized that gifted children with dyslexia would outperform children with dyslexia on literacy tests. In addition, a core-deficit model including dyslexia-related weaknesses and a compensational model involving giftedness-related strengths were tested using Bayesian statistics to explain their reading/spelling performance. Gifted children with dyslexia performed on all literacy tests in between children with dyslexia and TD children. Their cognitive profile showed signs of weaknesses in PA and RAN and strengths in VSTM, WM, and language skills. Findings indicate that phonology is a risk factor for gifted children with dyslexia, but this is moderated by other skills such as WM, grammar, and vocabulary, providing opportunities for compensation of a cognitive deficit and masking of literacy difficulties.