The purpose of this study was to identify what and how preservice teachers observe when peer coaching during an early field experience. Twenty-three male and 14 female preservice teachers trained in peer coaching participated in the study. Coaches observed a peer partner teach five 40-min lessons to small groups of elementary or junior high school students in a semester-long second practicum experience. During observation, coaches completed a Peer Coaching Form that included a praise statement and observation notes. A total of 169 Peer Coaching Forms containing 946 statements were collected and analyzed using traditional, naturalistic methods of inductive analysis. Three themes emerged: (a) systematic observation, (b) theory to practice, and (c) students as individuals. Observation changes occurring across the semester suggest peer coaching needs to occur over an extended period of time emphasizing the role of coach as observer for optimal teacher knowledge development.