Since 1988, the governance and organization of education in England and Wales have moved decisively in the direction of decentralization and site-based management. Under the Education Reform Act of 1988 and the Education Act of 1993, local education agencies (LEAs) have acquired new responsibilities via local management of schools (LMS) and grant-maintained (GM) or "opted out" status. In addition, the moves toward school autonomy must be placed in a framework that requires schools to compete for pupils within local educational markets. However, in England and Wales, there is a tension between managerial decentralization and educational centralization. This paper describes how this tension arose and its implications for the scope and direction of grant-maintained schools' policy. The first section discusses the five different principles of school autonomy--state control, community responsiveness, management, curriculum and pedagogy, and pupil identity. The second section describes the background of the GM schools' policy. Recent developments in the policy are highlighted in the third section. The concluding section reviews the extent to which GM schools are state or community regulated and responsive, and identifies trends for 1989-94 in the areas of the five principles of school autonomy. (LMI)