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Whereas most research in assessment in online education (OE) has focused on summative evaluation, this qualitative study seeks to develop an understanding of formative assessment as experienced by OE instructors. Semi – structured interviews were conducted with three OE instructors from different universities in Canada and their responses were analyzed using the Activity Systems Theory framework and revised Bloom’s Taxonomy of Educational Objectives. Results indicated that OE instructors face challenges in developing methods and tools to sustain high level of systems of inquiry and reasoning. Central to understanding these findings are the different roles that instructors take in OE. The most successful OE formative assessment involved problem-based learning using on-line discussion boards.