Australian governments at both federal and state levels have collaborated for the past 15 years to lift Indigenous students from their position as the nation's most educationally disadvantaged group. The introduction in 1989 of the National Aboriginal and Torres Strait Islander Education Plan was accompanied by an ambitious target of achieving educational equity by the year 2000 (Beresford and Partington, 2003). Not only has this target not been achieved, but actual progress, while showing some upward trends in levels of achievement, participation and retention, continues to lag significantly behind rates for non-Indigenous students. Despite unprecedented levels of funding, policy development and cross-government coordination, the failure to attain anything like educational equity for this group highlights state governments' underestimation of the intractable nature of the problem. In turn, this failure reflects flaws in the policy formation process in Indigenous education. This article contends that state governments have not systematically applied a clear understanding of causation to policy development and especially the historical legacy created by past racial policies affecting Indigenous people.