This booklet is a guide to assist school districts in administering Chapter 1 projects funded through the 1988 Elementary and Secondary School Improvement amendments and focuses on areas of flexibility in Chapter 1 funding. An overview of Chapter 1 flexibility emphasizes that the legislation is designed to best meet the special educational needs of educationally deprived children while reflecting local needs and circumstances. The first section, "Selecting Attendance Areas as Project Areas," discusses the flexibility in ranking and selecting Chapter 1 attendance areas. The next section, "Assessing Needs and Selecting Students," offers examples of flexibility in determining Chapter 1 subjects and grades or extending eligibility to individual children. Another section, "Deciding about Chapter 1 Instruction," discusses add-on projects, in-class projects, replacement projects, preschool programs, voluntary desegregation and school choice, schoolwide programs, and innovation projects. Further sections discuss assigning and training staff, parent involvement, state and local compensatory funds, maximizing equipment use, and further sources of assistance from Department of Education offices. (JB)