This research examines the processes of family identity development using a grounded theory methodology. Goals of the study included: address a gap in the literature on family identity; initiate a discussion of family from the lived experience of people who consider themselves to be family; and personally to explore a flexible research methodology in the study of complex relationships in family identity development. The importance of raising discussion about family definition and identity is outlined in legal and social policy arguments that document implications for families. Definitions contribute to policy development that controls formal recognition of family status and access to government based services and tax benefits. Lesbian stepfamilies were chosen because it was expected that a family organization that was not included in typical definitions would provide a setting where identity development processes were most salient. Eighteen participants in five families, selected through a network of requests for participants, provided insights into their experiences of becoming a family in open ended interviews. Family meeting style interviews gave both the women and children the opportunity to voice their experiences and reflect on their past and present. Findings indicate that individuals within the family group, extended family, father and his new family, community, and definitions of family applied to social policy have implications for family identity development. Grandparents and step grandparents appear to play a particularly important role in supporting the strength and confidence of the family identity. When allegiances are divided, between a father who disapproves of the new family and a well liked stepmother, children appear to have a difficult time with developing a strongly defined family identity. Unlike heterosexual parented stepfamilies these families never experience the assumption that they are family without announcing themselves as a lesbian couple and declaring a parental relationship to the children. The step families in this study strive to keep challenges to their family identity in check while seeking to tip the balance in favour of experiences of validation. Processes for these families are viewed as continuing and evolving against a backdrop of legislative changes and legal challenges.