Policy processes in Catholic diocesan school systems have been largely ignored in the research literature. These systems educate approximately 20 percent of school children in Australia. They receive considerable financial support from the Federal Government, which has increased its rate and scope of encroachment into school education issues, despite its lack of constitutional authority in relation to schools. The study addressed the question: How do Australian Catholic diocesan school systems respond to funded Federal Government education policies which seek to influence schooling outcomes? It examined the response in three Catholic diocesan school systems chosen by purposeful sampling from different operational and State curriculum contexts. Key informants from the Catholic education Offices addressed their system's responses to the Federal Government's current vocational education and training (VET) and literacy policies, and provided supporting documentation. Together these cases contributed to a multi-case comparison. The findings of the study suggest that Catholic education systems act as both 'private authorities' and public agencies. They are institutions of the State in which they are located, infused by its culture, practices, and regulations all of which impact on their response to Federal Government education policy. In the policy transaction, the central administration acts as a 'gatekeeper' monitoring both internal and external influences, mediating and interpreting these and the policy for its schools. The Catholic school systems use different 'metaphors' and are characterised by different cultures, processes and understanding of the policy process. Despite this they appear relatively impervious to some of the policy discourse while they 'educate' and meet the 'needs' of students. The findings of the research will be of interest to Catholic education authorities, policy designers, and policy researchers as they offer insights into an important school sector and parts of the policy process not well canvassed in the literature.