Background: Recent data show that only 15% of Australian adolescents participate in adequate amounts of physical activity (PA) and those students from Asian and Middle-Eastern backgrounds in Grades 6-12 are significantly less active than their English-speaking background peers. Schools have recently been recognised as the most widely used and cost-effective setting for promoting PA among youth and one domain within schools where PA can occur regularly for all youth, regardless of cultural background or socio-economic status, is during physical education (PE). Methods: This study describes changes in physical activity (PA), lesson context and teacher interaction in physical education over the first two years in culturally and linguistically diverse secondary schools. Grade 7 PE classes in six schools were randomly observed using systematic direct observation (n =81) and then followed up over the same period (n=51) twelve months later. Results: There was no significant decline in moderate-to-vigorous physical activity (MVPA) during PE ( MD =-4.8 percent;p=.777), but a significant decline and medium negative effect in time spent in vigorous physical activity (VPA) (MD =-7.9 percent;p= .009) during PE was observed. Significant declines and large negative effects over time in percentage of PE time spent in management (MD =-8.8 percent;p<.001) and the number of observations where teachers promoted PA (MD=-20.7 percent;p<.001). Conclusions: The decline of VPA and teacher promotion of PA in culturally and linguistically diverse schools is of concern. Given the declines in VPA and the increases in time spent in game play, further research is needed to ascertain whether PE instruction could be improved by focussing on skill instruction and fitness in a games-based PE instruction model. Further research for increasing teacher promotion of PA during PE is needed.