The micro-level enactment of educational policy has received little attention in the physical education [PE] literature, particularly as it relates to setting policy. This study employs enactment theory to provide original insights into the ways in which setting policy was enacted by PE teachers in three mixed-gender secondary schools in England. The work of Stephen Ball and colleagues is used to examine the distinct and combined influence of the "situated," "material," "professional" and "external" dimensions of context on setting policy and practices in PE in these three schools. Data were generated through in-depth, semi-structured interviews with 15 PE teachers who were responsible for delivering the Year 9 PE curriculum. Our findings highlight notable variation in the ways in which setting policy was translated and enacted in PE in these three schools and the multiple factors shaping decisions about groupings and, in turn, teaching and learning for students in different sets. This study also provides novel findings regarding the dynamic interplay between the "external" dimensions of context (i.e. neoliberal policy making and pressures and supports from the local education authority [LEA] and the school inspectorate) and the "internal" dimensions of context (i.e. school-based traditions, school demographics, and support and resourcing for PE) in policy enactment. Attention is drawn to equity issues inherent in, and arising from, the varied enactment of setting policy in PE. The paper concludes by arguing for greater scholarly engagement with policy enactment, grouping strategies and constructions of ability in PE.