Despite the growing popularity of participatory peer education as an HIV-prevention strategy worldwide, our understandings of the processes underlying its impact on sexual norms are still in their infancy. Starting from the assumption that gender inequalities play a key role in driving the epidemic amongst young people, we outline a framework for conceptualising the processes underlying successful peer education. We draw on the inter-locking concepts of social identity, empowerment (with particular emphasis on Freire's account of critical consciousness) and social capital. Thereafter we provide a critical case study of a schools-based peer education program in a South African township school, drawing on a longitudinal case study of the program, and interviews and focus groups with young people in the township. Our research highlights a number of features of the program itself, as well as the broader context within which it was implemented, which are likely to undermine the development of the critical thinking and empowerment which we argue are key preconditions for program success. In relation to the program itself, these include peer educators' preference for didactic methods and biomedical frameworks, unequal gender dynamics amongst the peer educators, the highly regulated and teacher-driven nature of the school environment and negative learner attitudes to the program. In relation to the broader context of the program, we point to factors such as: limited opportunities for communication about sex outside of the peer educational setting, poor adult role models of sexual relationships, poverty and unemployment, low levels of social capital and poor community facilities. We discuss the implications of our findings for the design of peer educational activities, as well pointing to a number of broader social and community development initiatives that would maximize the likelihood of program success.