Initiative is rolled as normal. However, actions take a certain amount of time to perform, during which others may react.

Each round is divided into a number of "segments" equal to the highest Initiative score rolled. The notional time gap between an initiative score of 20 and one of 19 is one segment.

Spellcasting: Casting a spell as a standard action takes a number of "segments" equal to the spell level.. Quickened spells and cantrips take effect immediately. Full-round spells take 10 segments to cast, and one-round spells take effect on the caster's next initiative pass as normal.

Attacking (melee) Attacks with light weapons take effect immediately. Attacks with One-handed weapons (regardless of how they are wielded) take one segment, and two-handed weapons take two segments to take effect. Iterative attacks take a similar amount of time; e.g. three iterative attacks with a greatsword would take effect 2, 4, and 6 segments from the initial initiative score

Movement: Movement takes immediate effect, but delays subsequent actions by a segment.

Free/immediate/swift actions: These actions are delayed by prior activities, but take no time to execute in and of themselves.

Special Actions: Turning Undead, Wild Shaping, Bardic Music, etc, take a single segment to perform.

Worked example: Pan the Druid has initiative 15, Hershel the fighter also has initiative 15, and Twink the bard has initiative 14. Pan is under attack from Hershel and Twink, and wants to Wild Shape into a bear to fight more effectively. On initiative 15, Pan has the higher dex score so he declares his intentions first, but because it takes a segment to complete the action, Hershel has a chance to attack.

If Hershel had a shortsword (a light weapon), he could attack immediately, striking before Pan's frail human body instead of the bear he will become. Unfortunately, he is wielding a longsword (one-handed weapon), which also takes a segment to perform. By the time his sword connects, Pan has finished changing into a bear and hardly notices the sword striking his thick hide. Twink, on initiative 14, never had a chance to act before Pan shapeshifted.

If Pan had wanted to cast Bear's Endurance on himself (a 2nd-level spell) instead of Wild Shaping, the spell would have taken two segments to perform. Hershel could therefore attack him before the spell was cast (and possibly disrupt it) if he had a light or one-handed weapon, and Twink could attack with a light weapon. If Hershel had a greatsword (a two-handed weapon) or Twink had a rapier (one-handed), then their attacks would be too slow to interrupt the spell.

Whatever we do with this, combat is going to get complicated. Guess we'd need to playtest it...

What about the people with the lowest initiatives declare there actions first so the people with the higher initiatives can react to what the lowest initiatives do.