Morris-style contextual equivalence — invariance of termination under any context of ground type — is the usual notion of operational equivalence for deterministic functional languages such as FPC (PCF plus sums, products and recursive types). Contextual equivalence is hard to establish directly. Instead we define a labelled transition system for call-by-name FPC (and variants) and prove that CCS-style bisimilarity equals contextual equivalence — a form of operational extensionality. Using co-induction we establish equational laws for FPC. By considering variations of Milner’s ‘bisimulations up to ∼’ we obtain a second co-inductive characterisation of contextual equivalence in terms of reduction behaviour and production of values. Hence we use co-inductive proofs to establish contextual equivalence in a series of stream-processing examples. Finally, we consider a form of Milner’s original context lemma for FPC, but conclude that our form of bisimilarity supports simpler co-inductive proofs.