This article examines the consequences of the decentralization process that is under way in Costa Rica and which may undermine, rather than bolster, democracy in that country. I first outline three key contextual variables relating to the reform process: existing sociopolitical realities (constructing local legitimacy), the dynamics of the reform process (bottom-up versus top-down), and the timing or sequencing of the proposed reforms (what is being decentralized and when). Though I focus here on Costa Rica, these three variables are generally applicable in any case of decentralization. After considering these contextual factors, I evaluate the likelihood of four negative side effects arising from the ongoing decentralization process: party-system fragmentation, reinforced or mutated clientelism, intermunicipal conflict and polarization, and local government instability. Early evidence suggests that some of these effects, particularly party-system fragmentation and municipal instability, have begun to manifest themselves.