This paper explores the mutual process by which a principal and teachers in an urban elementary school develop the principal's leadership. Data were collected for this research throughout a principal's first year through systematic observations (shadowing) of the principal; semi-structured interviews with teachers, administrators, parents, school department and school committee members as well as community people; and document collection of memos, notices, letters to parents, and other written material obtained or distributed by the school. Data show that teachers and the principal began the year with similar expectations for their roles. This congruence, plus the principal's clear expression of rules and expectations, fostered a consistent and firm structure. Her respect and genuine interest in teachers nurtured relationships that sparked a mutual development of leadership. Teachers were satisfied with her leadership because they had influence. The school environment became more cohesive as the principal became responsive and the teachers assumed responsibility beyond their classrooms. Implications are that new principals need (1) to consider the school context when setting priorities and (2) to develop good communication and select areas to work on that are visible and have a high probability of success. Eight notes and a five-page bibliography are appended. (Author/ IW)