In speech perception, extraction of meaning from complex streams of sounds is surprisingly fast and efficient. By tracking the neural time course of syllable processing with magnetoencephalography we show that this continuous construction of meaning-based representations is aided by both top-down (context-based) expectations and bottom-up (acoustic-phonetic) cues in the speech signal. Syllables elicited a sustained response at 200-600 ms (N400m) which became most similar to that evoked by words when the expectation for meaningful speech was increased by presenting the syllables among words and sentences or using sentence-initial syllables. This word-like cortical processing of meaningless syllables emerged at the build-up of the N400m response, 200-300 ms after speech onset, during the transition from perceptual to lexical-semantic analysis. These findings show that the efficiency of meaning-based analysis of speech is subserved by a cortical system finely tuned to lexically relevant acoustic-phonetic and contextual cues.