Lawrence Kohlberg believed children needed to be in an environment that allowed for open and public discussion of day-to-day conflicts and problems to develop their moral reasoning ability. This study examined moral discourse, reflection, and development in a school community with a process similar to that described by Kohlberg. Data were drawn from an extensive set of field notes made in an ethnographic study at an ungraded, democratically structured school where students, ranging in age from 4 to 19, are free to choose their own activities and companions. Guiding questions were: How might participation in such a community influence children's understanding of what it means to be a responsible member of a community? and What opportunities do children have for discussing, learning about, and exerting responsibility? The Sudbury Valley School in Framingham, Massachusetts, which enrolls about 220 students, is a democratic community designed to allow students to pursue their own interests in their own ways. All the students enrolled during the 3 years of the study were potential subjects. Over 3 years, the researcher observed 52 meetings of the Judicial Committee, which investigates violations of school laws. Vignettes were analyzed using grounded theory approach to qualitative analysis, and themes were developed from an analysis of observations of meetings. Each theme describes a participation level that students assume in the process and that provide opportunities for them to develop and deepen understanding of the balance of personal rights and responsibilities within a community. The study adds to the understanding of education and child development by describing a school that differs significantly in its practice from the wider educational community and by validating Kohlberg's thesis about developing moral reasoning. (Contains a table and 17 references.) (BT)