We use the Obama administration's Race to the Top (RTTT) program to address two questions about competitive grants. First, what does RTTT and its competitive approach reveal about the current state of educational federalism? Second, and more generally, how do large federal grant programs operate when state governments compete for funds? Our analysis indicates that although RTTT has expanded federal involvement in state education policy, its success still depends crucially on subnational implementation. We also note the important role of state capacity in predicting states'abilities to apply to and perform well in the RTTT competition.We conclude by suggesting implications for educational federalism during the coming years and offering more general insights about the operation of competitive federal grants to states. Scholars frequently use federal grant programs to consider theoretical or empirical questions about American Federalism. One consistent pattern in the nation's intergovernmental system has been for federal lawmakers to use formulas to distribute large grants to subnational governments. Certainly, hundreds of competitive federal grants, often called ''project'' grants, also exist in which awards are not guaranteed because applicants compete for funds. Still, the vast majority of federal dollars flow to states via large formula grants, such as those for Medicaid, Temporary Assistance to Needy Families, and highway planning and construction (Beam and Conlan 2002). Politically, these formula grants provide legislators with reliable funding streams that help them claim credit with their constituents. That is one reason why proposals to change grant formulas, which can alter the amounts that states or congressional districts receive, spark intense political debates on Capitol Hill. In education, federal officials have relied heavily on formula grants in major laws such as the Elementary and Secondary Education Act (ESEA), presently known as the No Child Left behind Act (NCLB).