The use of stories to teach character is popular among educators, yet very little is known about student comprehension of these stories (Leming, 1997, 2000). In order to tap the educational potential of literature-based character education, more must be known about the development of students' comprehension of story themes. In this dissertation, two types of themes were studied: moral themes involving social cooperation, and functional themes involving prudence. Participants (N=356) in grades 4 through 12 read short stories and identified the best theme from a list of choices. Participants also completed measures related to reading, motivation, and moral development. Developmental differences were found among all ages for both types of theme comprehension, except for moral themes in early adolescence. There were significant differences between comprehension of the moral and functional themes; however, the effect size was very low. In a multiple regression, social responsibility (or compliance) and ability-avoidance goals were predictors of moral theme comprehension. Moral reasoning and ethical problem-solving skills were predictors of both types of theme comprehension.