This paper reviews research on grouping of students within classes and its effects on learning. Primary consideration is given to grouping and mixing students by ability, though consideration is also given to grouping and mixing students by ethnicity and gender as well as to research on the effects of group size. Results of meta-analyses of grouping show a small but meaningful advantage of forming students into groups for instruction as compared to using whole-class instruction. In teacher-led, homogeneous ability groups, peer effects result from the normative environment to the extent that peers contribute to norms for behavior, constructed through cycles of reciprocal teacher-student interaction. In peer-led, heterogeneous ability groups, peer effects stem directly from group interactions and discourse among students that lead to cognitive restructuring, cognitive rehearsal, problem solving, and other forms of higher-level thinking. Similarly, in groups of different ethnic and gender composition, peer effects stem from interactions among students according to their perceived status and relative influence within the groups. We argue that these peer influences interact with instructional processes to mediate the effects of group composition on students' learning.