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There is currently a widening interest in learning in the type of situation where the learnt knowledge is to be deployed - situated learning. However, the understanding of this approach to learning and its outcomes remains incomplete. It remains unclear how situations influence the construction of knowledge. This paper seeks to commence addressing this question through an analysis of the nature and possible cognitive consequences of situated learning. To engage in this analysis it is necessary to offer an initial reconciliation of aspects of cognitive and socio-cultural theorising. This reconciliation provides a basis to advance an account of how situations influence the co-construction of knowledge. It is held that individuals' participation in goal-directed activities is integral to a mutually transforming process of learning. Moreover, the situation and circumstances constitute a basis for understanding these activities and therefore cognition. Areas of compatibility between the two perspectives are first identified followed by a view of how social circumstances influence the reciprical construction of knowledge using a review of the literature. Finally, an account of the likely cognitive consequences of situated learning and their sources is advanced.