This study investigated the development of character transposition effects during Chinese compound word recognition via computer mouse movements instead of the conventional key presses. Empirical evidence to reveal the impacts of vocabulary knowledge, grade level, and whole word frequency on Chinese transposed-character effect is lacking. In the present study, we measured the transposed-character effect in two groups of Taiwanese children (second and fourth graders) in a mouse-tracking lexical-decision task including nonwords derived from real words by transposing two characters (e.g., “習學” from “學習” [learning]) and control nonwords in which two characters are replaced (e.g., “以修”). Our results indicate that participants showed longer mouse movement times and larger spatial attraction in recognizing transposed-character nonwords than in replaced-character nonwords, suggesting that the dominant role of whole-word representation in processing Chinese compound words. Our results also further demonstrate that how the degree of character transposition was affected by vocabulary knowledge, grade level, and word frequency.