During the 1990s, Tanzania like many other developing countries adopted health sector reforms. The most common policy change under the health sector reforms has been decentralization, which involves the transfer of power and authority from the central level to local authorities. Based on the case study of Mbarali district in Tanzania, this paper uses a policy analysis approach to analyse the implementation of decentralized health care priority setting. Specifically, the paper examines the process, actors and contextual factors shaping decentralized health care priority setting processes. The analysis and conclusion are based on a review of documents, key informant interviews, focus group discussion, and notes from non-participant observation. The findings of the study indicate that local institutional contexts and power asymmetries among actors have a greater influence on the prioritization process at the local level than expected and intended. The paper underlines the essentially political character of the decentralization process and reiterates the need for policy analysts to pay attention to processes, institutional contexts, and the role of policy actors in shaping the implementation of the decentralization process at the district level.