The purpose of this research was to test an indirect-effects model of the relation between the Paraguayan principals' characteristics and their instructional leadership activities (as perceived by teachers) and school outcomes. Complete data were obtained from 256 of 300 schools in a random sample. Data were collected at the school-level through self-administered questionnaires. The Paraguayan Ministry of Education's Department of Planning, Information and Statistics provided data on enrolment, repetition and dropouts. Structural equation modelling was used to test the hypothesized relations. The study finds that when comparing two similar schools: (1) better prepared, more experienced principals are viewed more favourably by teachers; (2) student achievement is higher at schools where principals are available to take part in efforts to improve instruction, than at schools where principals are not available, due to teaching responsibilities; and (3) higher levels of student achievement at schools where principals are available to improve instruction are associated with lower student grade repetition rates. The findings' implications are considered in relation to policies to relieve principals of some or all of their teaching responsibilities and to prepare them for and support them in instructional leadership roles. (Contains 2 figures, 4 tables and 2 notes.)