The aim of this paper is to identify the mechanisms that relate participation in programs established by Chapter 1 of the Education Consolidation and Improvement Act of 1981 to student achievement. It focuses on what happens to students in Chapter 1 programs and how their experiences affect their growth in academic achievement. The paper begins with a brief background description of services provided by Chapter 1, the extent of the program, and the disappointing results of federally funded compensatory education programs as revealed especially in the Sustaining Effects Study (Carter, 1984) which evaluated Title I of the Elementary and Secondary Education Act, the predecessors of Chapter 1. Next, the paper discusses grouping, instructional, and interactional processes that occur in Chapter 1 classes and their relationship to achievement. Finally it examines the process through which students are designated as eligible for Chapter 1 services. Among the findings are the following: (1) The greater success of Chapter 1 in first grade may be because Chapter 1 students receive more instructional time and higher quality instruction in first grade than later. (2) Since many students receive Chapter 1 services for only one year, their participation in compensatory education may not be sufficient to produce long-term benefits. (3) Since only the lowest achievers are retained in Chapter 1 programs across grades, long-range effects are not likely to appear because achievement is generally small with this population of students, regardless of the kind of instruction they receive. (4) Very low-achieving students may be more vulnerable to the negative effects of low teacher expectancies and labeling. A list of references is included. (PS)