The effectiveness of literature circles is really dependent on your students, how interested they are in the literature they've been assigned and how long you drag out the unit for. Students need to know exactly what is expected of them, they need to be highly interested in the reading material, and the unit should only last maybe two weeks at the most. If you depend purely on literature circles in your classroom, students will revolt by the third book. Even I would revolt. I do not think this is the most interesting way to teach reading, but I think if you pull it out once or twice in the course of a year, students will enjoy it.
The idea of a literature circle revolves around a small group of students reading the same book. Each student is given a different job. Teachers use different names, but basically it boils down to an Illustrator (someone who draws pictures from the reading), a Discussion Leader (someone who thinks up thick questions to ask about the reading), a Quote Taker, etc. You can view the different forms below and decide which jobs you want for your students. Jobs are usually rotated on a nightly basis so everyone gets to do everything. They keep a journal with all their collected information and perhaps turn that in for assessment. The details are up to you.
Literature Circle Role Definitions
Role Finder Dial
Literature Circle Packet
Literature Circle Preparation
Response Journal Prompts
Non Fiction Journal Prompts
Literature Circle Format Guide
Literature Circle Reflection Sheet
Literature Circle Bookmark
Talking Sticks Format Guide
Mini Circle Format Guide
Discussion Card Templates
Literature Circle Central- Great website for figuring out what might work in your classroom.