Zambia implemented an ambitious process of health sector decentralization in the mid 1990s. This article presents an assessment of the degree of decentralization, called 'decision space', that was allowed to districts in Zambia, and an analysis of data on districts available at the national level to assess allocation choices made by local authorities and some indicators of the performance of the health systems under decentralization. The Zambian officials in health districts had a moderate range of choice over expenditures, user fees, contracting, targeting and governance. Their choices were quite limited over salaries and allowances and they did not have control over additional major sources of revenue, like local taxes. The study found that the formula for allocation of government funding which was based on population size and hospital beds resulted in relatively equal per capita expenditures among districts. Decentralization allowed the districts to make decisions on internal allocation of resources and on user fee levels and expenditures. General guidelines for the allocation of resources established a maximum and minimum percentage to be allocated to district offices, hospitals, health centres and communities. Districts tended to exceed the maximum for district offices, but the large urban districts and those without public district hospitals were not even reaching the minimum for hospital allocations. Wealthier and urban districts were more successful in raising revenue through user fees, although the proportion of total expenditures that came from user fees was low. An analysis of available indicators of performance, such as the utilization of health services, immunization coverage and family planning activities, found little variation during the period 1995-98 except for a decline in immunization coverage, which may have also been affected by changes in donor funding. These findings suggest that decentralization may not have had either a positive or negative impact on services.