Soft-collinear effective theory is generalized to include soft massless quarks in addition to collinear fields. This extension is necessary for the treatment of interactions with the soft spectator quark in a heavy meson. The power counting of the relevant fields and the construction of the effective Lagrangian are discussed at leading order in Λ/m b . Several novel effects occur in the matching of full-theory amplitudes onto effective-theory operators containing soft light quarks, such as the appearance of an intermediate mass scale and large non-localities of operators on scales of order 1/Λ. Important examples of effective-theory operators with soft light quarks are studied and their renormalization properties explored. The formalism presented here forms the basis for a systematic analysis of factorization and power corrections for any exclusive B-meson decay into light particles.