Teacher knowledge is contentious, due to the disjuncture between theoretical input from teacher education and knowledge generated from practice. ‘Work process knowledge’ (Boreham et al, 2002) captures the complexity of teacher knowledge (Grangeat & Gray, 2008), but we argue that observation detaches new teachers from activity systems comprising teachers and pupils. Observation enables new teachers to develop pedagogical content knowledge and “pedagogical process knowledge” (Smith et al 2013) but not “pedagogical system knowledge”. The development of ‘lay theories’ of pedagogy is therefore hampered by ‘pedagogical immunity’ (Rusznyak, 2009), and by a lack of data to support theory. It is also hampered by the experience of being a pupil (Rivas et al, 2013). There is thus not so much a theory-practice gap as a teacher-pupil gap, compounded by a lack of formative feedback from pupils to teachers (INSTEM, 2014; Gray et al 2006). This disadvantages new teachers because they are caught between their lay theories and those of experienced teachers. We analyse student teachers’ reflections on their observations, lay theories of teaching and influences on practice. New teachers are caught between systemic assumptions and classroom realities. We suggest how to develop pedagogical system knowledge through formative pupil-teacher interaction.