A teacher-researcher observed the behaviors and discourse of second graders in a student-led literature discussion group. A group of five students who represented the predominantly white, rural/suburban middle class community in which they lived was studied. All 22 students participated in a unit on folk and fairy tales. The case study group, along with the other peer response groups in the classroom, discussed literature selections and were exposed daily to direct instruction in reading comprehension strategies. Data included teacher logs, memos, elaborated field notes, and transcriptions of student interviews and student-led discussion sessions. Results indicated that: (1) students in the case study group demonstrated characteristics of good readers in their discussions of folk tales; (2) the students also responded aesthetically to the literature; and (3) within the social structure of the small group the roles of the students were constantly changing. Findings suggest that: with sufficient teacher modeling and support, second-grade students are able to sustain a discussion of literature without direct teacher intervention; students can articulate and demonstrate their understanding of written text; when given frequent opportunities, students in peer response groups can monitor their own discourse in relation to turn-taking, questioning, responding, elaborating, summarizing, and affirming. (RS)