This paper describes why and what transformational leadership is needed to pursue school effectiveness and development in the rapidly changing education environment and in the coming new century. The paper first discusses the challenges to school leadership and the need for new leadership in light of the pursuit of school effectiveness and the worldwide educational reform trends. The paper next draws on recent research on principals' leadership in Hong Kong schools to make observations about leadership and school development, in both local and international contexts. The paper then illustrates the shifts of leadership concepts and explains why transformational leadership is so critical to meeting educational challenges in the changing environment. The next section illustrates the concept of transformational leadership and its relationship to school-based management, strategic management, and school effectiveness. The final section offers recommendations to help school principals practice transformational leadership and achieve long-term school effectiveness, one of which is to establish a principal center for leadership learning and development. Two tables and one figure are included. (Contains 45 references.) (LMI)