Literacy of Navajo Indians within an isolated community of a northeast Arizona Navajo reservation is discussed, based on an ethnographic investigation. Functions for English and Navajo literacy in two community settings where Navajos use standard and vernacular print are described. Using literacy artifacts, participant observation, and interview data collected over six months, attention is also directed to ways of participating in situations where people construct meaning from print; beliefs individuals share about literacy; and roles that institutions and power play in the overall functioning of literacy. Navajos exemplify a traditionally oral people who are both undergoing rapid modernization and, in certain church, school, and home domains, developing uses for vernacular print. Most Navajos, however, do not read and write nearly as effectively as school, business, and government institutions demand. Findings thus far indicate that an oral-literate diglossia exists whereby Navajos typically communicate in Navajo but read and write in English. Interaction within the chapterhouse and the church are discussed and illustrated using chapter notes, field notes, interview transcripts, and excerpts of a communion service. Cochran-Smith's (1984) idea about multiple layers of context is used as a framework for the analysis. The Navajo community's literacy events can be viewed as circles around a center, involving the physical and behavioral structure; functions for speaking, reading, and writing; a level of beliefs; and a level structured by power. (SW)