Abstract: Governments across Latin America have decentralized their health systems in an effort to improve services for poor, rural populations. Despite tremendous enthusiasm on the part of policymakers and donors, relatively little rigorous evidence exists on whether reformed system produce better services or how contextual factors influence effectiveness. In this paper we investigate the conditional effects of decentralized governance on local health services using a difference-in-differences research design and original quantitative and qualitative data from Honduras. We expect that local conditions will moderate the performance of health sector decentralization, namely that decentralization will perform better in localities with more political competition, greater participation, and larger existing resources. Our preliminary analysis supports these expectations, showing that decentralization increases production-based health services, especially preventive care for women, and that these effects are largest in more favorable local contexts. The results of this analysis help inform policymakers in terms of how they target decentralization reforms locally and the types of support that may be needed so that localities with less favorable conditions also experience improvements in their services.