This article focuses on the theoretical frame of action research and the teacher as researcher, working through a Norwegian Research Council-funded project in a school that explored learning strategies for pupils' subject and social development. Action research is here called research and development (R&D) work as the term envisages that research and development are being conducted at the same time. Additionally, the term reflects the fact that the research is conducted within the framework of activity theory and Engestrom's expansive learning circle in which work is termed R&D. The article describes the possibilities and challenges for both teachers and researchers cooperating in R&D projects. Reflection on observed teaching are presented as a central activity in development work, covering the form and content of reflective dialogues; quotations from teachers are provided to show how the teachers experienced observation and reflection. The article discusses whether teachers become researchers, or whether they only develop in their role as teachers. The close cooperation between teachers and researchers in this work is also presented as a model for further education for teachers in-service and for the training of teacher students. (Contains 3 figures.)