The agile principles of social interaction and tacit knowledge were examined in this survey study of 48 software development teams. It was proposed that that team tacit knowledge is created through frequency and quality of social interactions and through the development of a transactive memory system. Results supported the hypothesis with quality of social interaction playing a greater role than transactive memory in the creation of team tacit knowledge, although transactive memory did not mediate the relationship. This study provides empirical support for the cognitive processes involved in tacit knowledge creation, which underlies the agile approach to software development.