Information and exercises in this two-part learning module are provided to acquaint instructors with the educational theory behind competency-based education (CBE) and to help them apply this theory in the classroom. Part I of the module discusses: (1) the defining characteristics of CBE, in which instructional processes are designed to facilitate student achievement in a hierarchy of articulated cognitive, attitudinal, and psychomotor objectives; (2) the implications of these characteristics for grading and course sequencing; (3) the factors influencing the development of CBE, including demands for accountability, increased educational research and development, and advances made in mastery learning, developmental stage theory, and the movement away from norm-referenced testing; (4) the varying approaches to CBE taken by those in developmental instruction, general education, vocational education, and experiential programs; and (5) the roles played by instructors and students in the CBE process, which involves determining the rationale for a course, identifying outcomes, designing a summative assessment, developing personalized learning strategies, recording student progress, and evaluating course success. Part II of the module applies this information in a series of exercises designed to assist the instructor in developing: a course rationale; competency statements; assessment methods; outcome-based grade contracts; and personalized learning activities. (JP)