The purpose of this study was to synthesize a category system for observation of communicative functions in children's speech and to test that category system by recording observations of interactions within a first-grade classroom. The observation system which was designed attempts to account for all factors of a communication situation and to outline detailed functions of verbal behavior. Five primary functional categories were developed and three levels of functional analysis were employed. The system was used to observe ten hours of naturally occurring communications in the classroom. From these observations, five communication situations were selected and described in detail. The most important finding of the study was that this system of observation produced rich and relevant data with regard to communication interactions. Teacher/student interactions proved to be quite different from peer interactions. A functional system does not need to assume that an utterance serves only one function or works at only one system level. Furthermore, a functional system can account for culturally defined realizations of utterances. (Author/JM)