Although the role of morphology in alphabetic language processing has been extensively studied, it is still unclear how morphology is enabled and constrained in morpho-syllabic languages like Chinese. This study aims to inspect the time courses and patterns of brain activation associated with Chinese morphological constraint encoding. Chinese native speakers were recruited to perform visual lexical decisions on real Chinese compound words, pseudowords, and nonwords, whilst behavioral, electroencephalographic, and functional near infrared spectroscopy data were simultaneously recorded. For the first time, both morphological and semantic effects were examined to reveal the corresponding spatio-temporal brain activation patterns based on multimodal data. Brain activation differences between pseudowords and real words indexed morphological sensitivity, whereas differences between real words or pseudowords and nonwords characterized semantic effects. Electrophysiological data showed that semantic processing occurred earlier (N400, 300–450 msec) than morphological processing (450–570 msec), while brain activation patterns revealed a differentiation between morphological parsing (specified in the left inferior frontal gyrus) and semantic analysis (in a broader fronto-temporal network). These findings offer new evidence that morphological constraints are encoded at a late stage of compound word processing in Chinese and suggest that the left prefrontal cortex plays an essential role in this process.