Health sector reform is on the policy agenda of national governments and international agencies. This paper focuses on the policy process of health sector reform and, more specifically, the policy context. The importance of understanding policy context is emphasised and the elements of policy context are discussed. These are: demographic and epidemiological change; processes of social and economic change; economic and financial policy; politics and the political regime; ideology, public policy and the public sector. The paper then discusses the means for, and methods of, interpretation of the policy context. Particular emphasis is placed on linking policy context with an overall understanding of the policy process, the 'messiness' of policy-making, the interrelationship between the contextual factors, the contextual factors interpreted by policy actors, the use of analytical categories in the policy analysis. The paper concludes on the importance of strengthening policy analysis for effective health sector reform.