Discuss the importance of character development with the class and ask them to name some of their favorite characters from books and movies. Ask them why and discuss what makes those characters intriguing. This gets the students thinking about character development and how it affects the characters in a story.
Choose a short story the class can read together. Classes of younger students can read the story out loud while older students can read it as a homework assignment. Talk about the development of the major characters as the story goes on and how that development enhances the story. Get the students' opinions to keep the exercise interactive instead of simply a lecture.
Assign a short writing assignment where the students focus on developing a single character in the course of a story by giving background, having the character make choices and showing the character's evolution through the story's narrative.
Instruct the students to each read their story aloud to the rest of the class. Question the writer and the other class members about the character development in each story to engage the group in an interactive dialogue.
Ask the students what could have happened had a character in one of their stories made different choices or had come from a different background. Also ask if there was anything unanswered that the students want to know about each character you discuss. This encourages the class to assist each other in fleshing out their stories and characters.
Tell the students to rewrite their story based on the contributions from the rest of the class. Place the rewritten stories into a short book and print one out for each class member so they can read the new versions themselves and see how the development of each character improved through the interactive collaboration.