This study explored the effects of management-by-coaching as leadership-style in project management to raise team performance and motivation and understand its contribution to project success. The study was conducted as a longitudinal case study following a critical realist paradigm and a traditional action research methodology along with grounded theory methods of analysis. It observed four distinct case studies at the web department of a telecommunication company in Germany over a period of 12 months. In four cycles of coaching and research the effects of team coaching were observed and explored to develop a comprehensive theory of project management-by-coaching (PMC). In the course of the study PMC was found to be a moving, flexible and dynamic conception, which helped creating an environment for generating positive real-life experiences, and provided a significant influence on the individuals' and teams' performance. The study revealed that PMC to manage group dynamics and address interpersonal relations was a fundamentally option-driven, cyclical and iterative approach. With its on-going planning phase, it focused on practical actions, and therefore turned out to be a broader and more flexible approach than classical coaching. From the study a process of PMC was developed to set out all stages and main learning points, to apply the approach to other projects.