A new model of participation in group goal setting (PGGS) is presented. The model consists of (a) mediator variables (e.g. group cohesion, identification with the group, potency beliefs) that explain why PGGS might affect motivation and group performance, and (b) moderator variables that foster or hinder the development of these effects (e.g. group composition regarding fear of social rejection). Several assumptions of the model were tested in an experiment using a group brainstorming task. Challenging group goals (assigned or participatively set) improved group performance, promoted identification with the group, and improved the readiness for social compensation, but there was no overall effect of PGGS on group performance. However, as predicted, participation alleviated anxiety and groups of highly anxious persons showed enhanced performance due to PGGS. Interestingly, PGGS also decreased group cohesion and intrinsic motivation, probably due to the revelation of goal conflicts during group discussions. These findings suggest that current theories of goal setting and participation have to be extended in various ways.