Competition is a powerful tool that can be used in the school sector to benefit consumers, raise productivity and help the poor. The superior performance of private schools over state schools demonstrates the benefits of private ownership, managerial autonomy and market accountability in a competitive environment. Moreover, the US evidence is that even the limited competition sometimes permitted between government schools and between a fringe private sector and a dominant state system improves state school performance—student achievement increases while spending per pupil falls (see Hoxby 1996, 1997a, 1997b, 1998a, 1998b, 2001; Dee 1998). Reform of education financing to increase competition between schools would be beneficial, but the benefits can be offset by regulation that hinders competition and restricts choice. Regulation can impair the performance of private schools by reducing their autonomy and incentive to cater to parents. It may also be used to protect incumbents and impose particular education philosophies. For regulation to foster competition and widen choice, it should be minimal and not require detailed oversight of how schools operate. The government’s role as provider of education should be separated from its role as regulator. Specific examples of the potential costs of regulation, and appropriate regulatory policy to facilitate competition, are set out: how the government should regulate private school admission policies, curricula and fees.