Abstract: This discussion paper reports on findings from a collaborative study between the Centre for Aboriginal Economic Policy Research (CAEPR) and Central Australian Remote Health Development Services that involved two remote Indigenous communities in the Northern Territory. Data was collected using interviews which incorporated a National Reporting System (NRS) assessment of language, literacy and numeracy competence. The study explored the social context of literacy acquisition and use in these communities, analysed the findings and explored their implications for training, employment and capacity development in remote Indigenous communities. The findings from the NRS assessments indicate that a large discrepancy exists between people’s perception of their literacy competence and their actual competence. The study also revealed that adult literacy levels were generally low, and in several cases, much lower than was assumed by some non-Indigenous people living and working with members of these communities. The contents are: Introduction; The problem of literacy and capacity development; Theoretical framework for the project; An overview of the research sites; Methodology: the interviews and literacy assessments; Findings; Some preliminary conclusions and recommendations for policy directions.