If you want to get a great summary of the Reformed, and I think correct, view of sanctification you can find it in Sinclair's article in Christian Spirituality: Five Views of Sanctification. His article is worth the price of the book alone, but it is also great to see other traditions' views presented by their best scholars and critiqued by each other. In a nutshell, below is how I would explain sanctification:
What is sanctification? From the Reformed perspective sanctification can be defined as the life-long process (Philippians 1:6) of our whole man being conformed to the image of Christ (Romans 8:29) through the work of God’s grace (John 1:16; II Corinthians 9:8; 12:9) by the agency of the Spirit (Galatians 3:1-5; I Corinthians 6:11) applying the blessings of our union with Christ (John 14:20; 15:5; Ephesians 5:25-32) to us through the means of grace—the sacraments, the Word of God, and prayer.
When does this happen? In the logical order of salvation sanctification begins after our justification and adoption and continues until our glorification. One might ask, “Why is this important?” It is important because we must understand that the foundation for the transformative process of sanctification is our forensic standing before God. We are declared righteous and adopted into the family of God by being united to Christ through the Holy Spirit. Only on the certainty of this foundation can we truly understand the way of sanctification. The principal means of the believer’s sanctification is union with Christ. As Paul reminds the Galatians, this foundation assures us that sanctification is not by human effort—it began with faith in Christ, it will end with Christ, and in between it continues with faith in Christ (Galatians 3:1-5).
The key focus that needs to be brought out is that Christ Himself is our sanctification (I Corinthians 1:30) and it is only by our union with Him through the agency of the Spirit that we can “bear fruit” (John 15:5) in our Christian lives. Paul reminds us in Romans 6:5-8 that we were united with Christ in His death, we were united with Christ in His burial, and we are united with Christ in life. It is because of this union with Christ that we can “consider [ourselves] dead to sin and alive to God” (Romans 6:11). Being united with Christ in His death, burial, and resurrection broke our chains of slavery to sin and made us “slaves to righteousness” (Romans 6:15-18). It is only because of the blessings of this union with Christ that Paul can pastorally say to his Roman audience, “Let not sin therefore reign in your mortal body” (Romains 6:12) for it does not and cannot depend on “human effort” (Galatians 3:3).
If we are united to Christ and can have victory over our sin by this union why, then do we still sin? To understand this we must remember that God has replaced our heart of stone with a heart of flesh (Ezekiel 36:26-27) and created in us a new, inner man—we are a new creation in Christ (II Corinthians 5:17)—but since we have not yet been glorified with Christ the old, outer man still persists (Ephesians 4:22-23). The flesh has been defeated, but the loser still fights. We will not be completely free of sin until we are glorified with Christ and the old man is completely done away with.
How does the Spirit reshape us into the image of God? It is not by works that the Spirit molds us into the image of Christ. Good works do not produce holiness. It is the grace of God working in us by the Spirit through faith in Christ that produces holiness. How then do we receive this grace? The Spirit applies this grace to our lives through the use of the means of grace—the Word of God, the sacraments, and prayer. This is contrary to our normal was of thinking. We feel like we have to do something—that we must bring something to the table. However, we do not bring anything to the table, we rest in Christ. Sanctification, like justification, is by faith in Christ. We do this by letting the Spirit minister to our hearts through the Word of God (the reading, study, and especially the preaching of the Word in public worship), the observing of the sacraments during worship, and prayer (private and corporate). By the Spirit’s work through the means of grace we can respond with works of thankfulness to the unconditional love of God shown in the gospel. By the Spirit’s work through the means of grace we draw near to Christ and let the Spirit sanctify us in Him.
By His Grace,