The party says that there is a place for both state and independent schools, but the latter must be integrated as partners into the local community.
A central tenet of the policy will be to extend charitable status to all schools. This should enable LEA schools to organise local sponsorship and financial support.
LEAs will be encouraged to sell services to the independent sector and all educational establishments, whether maintained or independent, should adopt the same curriculum and standards.
In addition, LEAs will make their own decisions on awarding bursaries or subsidised places at independent schools. There will be no centrally-funded assisted places for children from lower-income families as the Lib Dems say such schemes "only act to increase the divisions within our education system". There may also be bursaries for children with special needs and money to pay for places at independent schools for pupils who have special needs in the arts or sports fields.
Paddy Ashdown, the party leader, said: "We have consulted with both sectors to look at a way of building a relationship between the two. The resources of the private sector should also be available to those who can't pay."
If independent schools refuse to play a wider community role there would be sanctions, including the loss of charitable status, he added.
* The closure of village schools will eventually appear as great an act of vandalism as Beeching's butchery of the railway lines, Mr Ashdown told a meeting of headteachers and governors in Bridgwater, Somerset.
He said the impact of technology and distance learning in the next 10 to 15 years would transform education and the village school will become a vital part of the learning network. "We will have to get rid of the idea of a school being a collection of buildings in bricks and mortar where you go to get education. We are on the cusp of a profound change," he said.
Mr Ashdown said his party was looking closely at home-school links and contracts between parents and the school.
Parents unable to meet their side of the contract would be helped but those who refused would be penalised. The party had looked at the example of some US states where parents who fail to fulfil their responsibilities.