This essay reviews current policy issues regarding statewide educational databases. It begins by defining the major characteristics of a database and raising two questions: (1) Is it really necessary to have a statewide educational database? (2) What is the primary rationale for creating one? The limitations of databases in formulating educational policy are then assessed to consider how they may be linked to policy formation and decision-making processes. This linkage appears to operate on two levels: the rational/ideal level, in which management information in statewide databases is used to determine what is rationally true and ideally desired; and the pragmatic level, which takes into account social, political, economic, and emotional constraints. On account of the proliferation of special programs, the growing demand for research data, and the growth of electronic data processing capabilities, state education agencies should adopt the following policy criteria for including information in a database: (1) clearly established needs; (2) clearly established definitions; (3) clearly established limits; (4) coordination of multiple databases; (5) a means for incorporating outside data, (6) a balance between technological and educational interests; and (7) proper regard for confidentiality and ownership, coupled with availability. Carefully planned, appropriately used, and constantly revised and upgraded databases can become the foundation of sound educational policy. (TE)