A study examined simultaneously household and elementary classroom life, and collaborated closely with teachers to develop implications for the teaching of literacy. The study consisted of three main, interrelated activities: an ethnographic analysis of the use and transmission of knowledge and skills within and among households (represented by 24 males and 29 females) in a Latino community in Tucson, Arizona; implementation of an after-school site where researchers and teachers examine classroom practices and use local resources to experiment with literacy instruction; and classroom observations examining existing methods of instruction and exploring how to change instruction by applying what was learned at the after-school site. Results indicated that: (1) the working-class, Hispanic households possessed ample funds of knowledge that become manifest through household activities; (2) in contrast to households, most classroom (and most teachers) function in isolation not only from other classrooms but from the social world of the students and the community; (3) the key to the development and implementation of any innovation was the involvement of teachers in the research process; and (4) teachers can take advantage of these funds of knowledge in a number of ways, including inviting parents to contribute to lessons. Findings suggest that reading and writing lessons be reorganized to become more interactive or participatory, emphasizing the children's use of literacy to obtain and communicate meaning. (Nine tables and four figures of data are included; 105 references are listed. The appendixes include a table of background characteristics of the sample households, fieldnote samples, evaluation instruments, and reading and writing samples. (RS)