This article contributes to the public administration and environmental governance literature by proposing the notion of ‘institutional subversion’ as a way of describing how the strategies adopted by local actors may change and even go against the initial aims of institutional development initiatives. The article discusses the case of the system for the environmental licencing of rural properties (SLAPR), an institutional development initiative by the state government of Mato Grosso in the south-eastern portion of the Brazilian Amazon. It will be shown that even though this initiative has earned the status of ‘best practice’ in controlling deforestation, a closer look at SLAPR reveals that it has led to contradictory outcomes. During the first 8 years of SLAPR, it had no significant impact on reducing deforestation and, in some cases, even permitted the increase of total deforestation by providing authorization for this. According to an institutional analysis of the case study, the article draws particular conclusions that could be relevant to public administrators in the region and in other countries. In particular, it is argued that by accepting the possibility of institutional subversion, public administrators may become more attentive to unexpected consequences and be able to take corrective action. Furthermore, in order to avoid institutional subversion, public administrators should integrate institutional initiatives into broader governmental, technological and economical dimensions. Copyright © 2012 John Wiley & Sons, Ltd.