Chapter 2 of Title I of the Elementary and Secondary Education Act is a formula grant program designed to support educational improvement. The intent of the Chapter 2 program is to make funds available for state education agencies (SEAs) and local education agencies (LEAs) to improve elementary/secondary education, meet the special educational needs of at-risk students, and support innovative school programs. Under the Chapter 2 program, LEAs receive block grants and have wide discretion over how they allocate funds. This paper assesses the effectiveness of the Chapter 2 program, with a focus on how successfully it promotes educational improvement. The data were collected through: national surveys conducted at the state and local levels; and case studies of 6 LEAs (Colorado, Indiana, Maryland, Mississippi, Texas, and Vermont) and 18 school districts (3 in each case-study state). If educational improvement is defined as addressing states' and districts' specific priorities, then Chapter 2 has been an effective strategy, especially when these priorities relate to educational reform as they often do. However, Chapter 2 has an uneven record in other respects. Findings show that these funds are used in much the same way as they were before the program's reauthorization: to support the purchase of instructional materials. As a strategy to focus funds on school improvement, the target areas have been less than successful. Recommendations include: (1) eliminate the targeted assistance areas; (2) focus both state and local Chapter 2 funds on educational reform initiatives and/or educational priorities; (3) eliminate materials and equipment as allowable expenditures unless they are directly related to reform; and (4) require that LEAs concentrate Chapter 2 funds on one specific activity/program related to reform or and educational priority. One figure and six tables are included. (LMI)