The main argument of this chapter is that the decentralisation policies in Mexico can best be understood within the context of the hegemony crisis of the post-war economic development. Within this context, the decentralisation policies were shaped as a result of collective pressures and struggles of certain key actors in Mexican politics: dominant factions of capital, the working classes and the International Financial Institutions (IFIs) such as the International Monetary Fund (IMF) and the World Bank (WB). While certain factions of capital asked for a reorganisation of the state which would allow neoliberal market forces to operate at the local level, the working classes stepped up their demand for more participatory and democratic local politics. To respond to these demands, the crisis of hegemony required a restructuring in the representational ties between the classes and the political party in power. On top of these pressures, when the debt crisis hit the country in 1982, the IFIs ‘advised’ the government ‘structural reforms’ as a mechanism for reducing state’s deficits and cutting public-sector expenditures. These restructuring reforms were filtered through the institutional settings and class relations of the country and took the form of the decentralisation policies. The chapter is organised in three sections. The first section provides a brief historical overview of the process of the Mexican state formation and consolidation following the Mexican Revolution. The second section examines the crisis of the late 1970s and maps out how class relations were shaped by the regional development policies and centralised interest representation mechanisms of the Import Substitution (IS) strategy. The third section focuses on the influence of the IFIs on the neoliberalisation and decentralisation processes.