Literature circles are one way to differentiate in the elementary classroom.
Any time a teacher makes adaptations for different student needs, that is differentiation. Good teachers are able to incorporate different activities and assessments into their regular routine. You can differentiate based on product, process or content. Usually kids will all be learning the same thing, but possibly in different ways.
One way to differentiate in your classroom is through choice. You can offer students a variety of project choices, and direct them to projects that are more at their ability level. Literature circles can be conducted with students choosing the books or teachers assigning them. They can be theme-based or content-based.
Literature circles are a strong classroom strategy because of the way that they couple collaborative learning with student-centered inquiry. (readwritethink.org)
One of the major benefits of literature circles is that you can have kids reading at different levels. In one sixth grade class, I even had all of the kids reading a different Harry Potter book, since they were at different reading levels. Kids who struggle can still get to read good books, but at their level. Kids who are advanced get a chance to read advanced books too. In a relatively easy way, everyone gets a chance to learn.
Kids usually meet in leveled groups about once or twice a week. They can read the book together or read it and then talk about it together, depending on the age group. You can have them complete roles, such as question asker, vocabulary word finder, and illustrator, or you can have them complete comprehension questions.