This conceptual paper reviews the extant literature on action research/teacher led inquiry and answers the question: How and in what circumstances can action research improve teachers' classroom practice and therefore what might be the implications for school improvement? A critical analysis of the nature and purpose of action research as a mechanism for school improvement is explored via close examination of definitions, the characteristics of action research and models of action research. From the literature reviewed, it is noted that action research, whether conducted individually or collaboratively, has been found to contribute to teachers' ability to investigate their practice with a view to improving students' outcomes and for school improvement. Nevertheless, the success of action research is predicated on a number of conditions such as motivation, trust, mutual respect, and resources, particularly time spent within the situational context. Additionally, in educational contexts, action research is generally externally mandated, and tends to take place as a fulfillment for programs of higher education which are targeted at improving practice in settings such as schools and classrooms. Under these circumstances action research does lead to school and classroom improvement. Still, these circumstances can be called ideal and as such the question of institutionalizing action research as part of the routine of schools globally remains a challenge. Still, however, action research has the potential for improvement at both the individual and institutional level once the conditions are right.