Kerala State, India, implemented decentralising reforms of healthcare institutions 25 years ago through transfer of administrative control and a sizeable share of the financial allocation. To describe the main impacts of decentralisation in Kerala on local policy formulation, programme implementation and service delivery for sustainable health systems. This was part of a broader qualitative study on decentralisation and health in Kerala. We conducted 25 in-depth interviews and reviewed 31 government orders or policy documents, five related transcripts and five thematic reports from the main study. Liaising between health system and local governments has improved over time. A shift from welfare-centric projects to infrastructure, human resources and services was evident. Considerable heterogeneity existed due to varying degrees of involvement, capacity, resources and needs of the community. State-level discourse and recent augmentation efforts for moving towards the UN Sustainable Development Goals (SDGs) strongly uphold the role of local governments in planning, financing and implementation. The 25-year history of decentralised healthcare administration in Kerala indicates both successes and failures. Central support without disempowering the local governments can be a viable option to allow flexible decision-making consistent with broader system goals.