Organizational differentiation of students is defined as the division of a student body into subgroups (classes, sections, streams) of a relatively permanent character for instructional purposes. A vast body of research exists on the effect of organizational differentiation, especially the effects of grouping according to ability. No coherent pattern of results emerges from this research. It is argued in this paper that the inconclusiveness o f the research is due not only to methodological problems, but also to the theoretical meagerness of the research. An attempt is made, therefore, to specify the crucial dimensions of the organizational differentiation. This conceptual framework is then used in the formulation of a set of mechanisms that may account for a relationship between organizational differentiation and student behavior. The set of hypotheses arrived at are used to reevaluate the existing research. Most propositions deal with the effect of organizational differentiation on student aspirations and beliefs, on between-classroom variation in achievement, and on the influence of family background on academic accomplishment. (Author)