On 1 July 1997, after 150 years of British colonial rule, Hong Kong returned to its mother country, the People's Republic of China (PRC). Anticipation of reunification spawned speculation about the possibilities, prospects and problems for the political, economic and social life of Hong Kong after 1997. This paper argues that the unpredictability and uncertainty which have characterized the educational policy environment in Hong Kong for many years were compounded by the imminence of the change of sovereignty. It is suggested that examination of the policy process in the contemporary Hong Kong context can best be understood by examining both macro‐ and micro‐policy perspectives, and the interrelationships between them. Two guiding questions related to the influence of sovereignty change on education are addressed. The first question asks how system‐level policies are being interpreted in schools. The second question asks whether, how and to what extent change of sovereignty has politicized the policy process, particularly at the school level. The paper has three parts: the first provides a socio‐politico‐economic context to Hong Kong's handover; the second describes important educational policies shaping the system during the period of transition; and the third discusses school‐level responses and reactions to the policies within the context of a politicized environment. Copyright © 1998 Taylor & Francis Ltd.