Grace is not unconditional acceptance, but it is undeserved. That is a very difficult balance to strike! God's grace comes to us without prerequisites, finding us as we are. God's grace does not come to the "deserving" (there is no such person), and it does not discriminate. Rather, initially it comes to us freely. But once it enters into our lives, God's grace demands changes; it holds us accountable. Why? Grace demands our holiness and growth for our sake as well as for God's glory. Grace intercepts destructive behavior, protects us from the ravages of sin, sanctifies us so we can be "holy and happy," two inseparable qualities.
In summary, grace is undeserved caring that intercepts destructive behavior. It is not unconditional acceptance, nor is it a legalism that says, "Shape us or I will stop loving you." Rather, it says, "Your sin cannot separate you from me," and then, in addition, says, "I won't let your sin destroy you." Grace comes to the unlovely person, but refuses to let him remain ugly. Grace begins as "justification," a free act of God alone, but it becomes "sanctification," a process by which the person cooperates with God in spiritual growth.
I find that a helpful distinction because it challenges my tendency to make grace cheap. Bonhoeffer's classic definition of "cheap grace" is worth repeating -- "Cheap grace is the preaching of forgiveness without requiring repentance, baptism without church discipline, Communion without confession, absolution without personal confession. Cheap grace is grace without discipleship, grace without the cross, grace without Jesus Christ, living and incarnate."
In other words, it's the grace we gladly extend to ourselves, with no strings attached. But the grace of God is different. We see it modeled in the earthly ministry of Jesus: the perfect balance of grace and truth. He healed and forgave the undeserving, but he didn't leave it at that. His free grace was accompanied by a message of repentance. "Go and sin no more." Divine grace shakes things up.
For the grace of God has appeared, bringing salvation for all people, training us to renounce ungodliness and worldly passions, and to live self-controlled, upright, and godly lives in the present age, waiting for our blessed hope, the appearing of the glory of our great God and Savior Jesus Christ, who gave himself for us to redeem us from all lawlessness and to purify for himself a people for his own possession who are zealous for good works. (Titus 2:11-14)