Management Theory has come to focus on "knowledge" which is considered as an important resource for organizational management in the knowledge society. This knowledge management movement in the West was strongly influenced by Japanese management theorists, Nonaka & Takeuchi (1995), who wrote the book "The Knowledge-Creating Company". David H. Hargreaves, a British educational sociologist, was inspired by this book and applied the Knowledge Management Theory to school organization. In his theory, he attempts to construct the networking system for supporting and sustaining the knowledge-creating schools that is capable of bringing about continuous innovation. This paper will illustrate and analyze the Knowledge-Creating School Theory with a particular focus on the distinction between knowledge-creating process and knowledge assets in school, since Hargreaves hasn't differentiated them well.