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Participant observation is one of the principle research methods of cultural anthropology. It relies on the assumption that the best way to understand a group of people is to interact with them closely over a long period of time. Historically, the group of people in question was a small, non-Western society. However, today it may be a specific corporation, a church group, a sports team, or a small town. There are no restrictions as to what the subject of participant observation can be, as long as the group of people is studied intimately by the observing anthropologist over a long period of time. This allows the anthropologist to develop trusting relationships with the subjects of study and receive an inside perspective on the culture, which helps him or her to give a richer description when writing about the culture later.

Interactions between an ethnographer and a cultural informant must go both ways. Just as an ethnographer may be naive or curious about a culture, the members of that culture may be curious about the ethnographer. To establish connections that will eventually lead to a better understanding of the cultural context of a situation, an anthropologist must be open to becoming part of the group, and willing to develop meaningful relationships with its members. One way to do this is to find a small area of common experience between an anthropologist and his or her subjects, and then to expand from this common ground into the larger area of difference. Once a single connection has been established, it becomes easier to integrate into the community, and more likely that accurate and complete information is being shared with the anthropologist.

Before participant observation can begin, an anthropologist must choose both a location and a focus of study. This focus may change once the anthropologist is actively observing the chosen group of people, but having an idea of what one wants to study before beginning fieldwork allows an anthropologist to spend time researching background information on their topic. It can also be helpful to know what previous research has been conducted in one's chosen location or on similar topics, and if the participant observation takes place in a location where the spoken language is not one the anthropologist is familiar with, he or she will usually also learn that language. This allows the anthropologist to become better established in the community. The lack of need for a translator makes communication more direct, and allows the anthropologist to give a richer, more contextualized representation of what they witness. In addition, participant observation often requires permits from governments and research institutions in the area of study, and always needs some form of funding.

The majority of participant observation is based on conversation. This can take the form of casual, friendly dialogue, or can also be a series of more structured interviews. A combination of the two is often used, sometimes along with photography, mapping, artifact collection, and various other methods. In some cases, ethnographers also turn to structured observation, in which an anthropologist's observations are directed by a specific set of questions he or she is trying to answer. In the case of structured observation, an observer might be required to record the order of a series of events, or describe a certain part of the surrounding environment. While the anthropologist still makes an effort to become integrated into the group they are studying, and still participates in the events as they observe, structured observation is more directed and specific than participant observation in general. This helps to standardize the method of study when ethnographic data is being compared across several groups or is needed to fulfill a specific purpose, such as research for a governmental policy decision.

One common criticism of participant observation is its lack of objectivity. Because each anthropologist has his or her own background and set of experiences, each individual is likely to interpret the same culture in a different way. Who the ethnographer is has a lot to do with what he or she will eventually write about a culture, because each researcher is influenced by his or her own perspective. This is considered a problem especially when anthropologists write in the ethnographic present, a present tense which makes a culture seem stuck in time, and ignores the fact that it may have interacted with other cultures or gradually evolved since the anthropologist made observations. To avoid this, past ethnographers have advocated for strict training, or for anthropologists working in teams. However, these approaches have not generally been successful, and modern ethnographers often choose to include their personal experiences and possible biases in their writing instead.

Participant observation has also raised ethical questions, since an anthropologist is in control of what he or she reports about a culture. In terms of representation, an anthropologist has greater power than his or her subjects of study, and this has drawn criticism of participant observation in general. Additionally, anthropologists have struggled with the effect their presence has on a culture. Simply by being present, a researcher causes changes in a culture, and anthropologists continue to question whether or not it is appropriate to influence the cultures they study, or possible to avoid having influence.