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This mixed methods case study examined elementary pre-service teachers’ (PSTs) experiences using ChatGPT to generate early literacy materials. Fourteen PSTs enrolled in a K-2 foundational reading course learned how to apply assessment data to generate decodable texts and lesson plans. Data sources included AI-generated decodable texts and lesson plans, student evaluations, student reflections, and focus group interviews. PSTs demonstrated growing instructional judgement using phonics assessment data to inform AI-generated literacy material, applying specific phonic features, and engaging in reflective practices to ensure instructional alignment. They engaged in AI literacy practices by effectively prompting, critically evaluating outputs, and aligning AI-generated materials with student needs. This study highlights the potential of AI as an instructional resource to support early literacy lesson planning.