Managing the transition of a health system (HS) from a centralised to a decentralised model has been touted as a panacea to the complex challenges in developing countries like Malawi. However, recent studies have demonstrated that decentralisation of the HS has had mixed effects in service provision with more dominant negative outcomes than positive results. The aim of this study was to develop a substantive grounded theory (GT) that elaborates on how activities of central decision-makers and local healthcare mangers shape the process of shifting the HS to a decentralised model in Machinga, Malawi. The study was qualitative in nature and employed the Straussian version of GT. Some participants were interviewed twice, and a total of 36 semi-structured interviews were conducted with 25 purposively selected participants using an interview guide. The interviews were conducted at the headquarters of the Ministry of Health (MoH) and other ministries and agencies, and in Machinga District. Data were analysed using open, axial, and selective coding processes of the GT methodology; and the conditional matrix and paradigm model were used as data analysis tools. The findings of this study revealed seven different activities, forming two opposing and interactional sub-processes of enabling and impeding patterns that derailed the decentralisation drive. The study generated a GT labelled "decentralisation of the HS derailed by organisational inertia," which elaborates that decentralisation of the HS produced mixed results with more predominant negative outcomes than positive effects due to resistance at the upper organisational echelons and members of the District Health Management Team (DHMT). This article concludes that organisational inertia at the personal and strategic levels of leadership entrusted with decentralising the HS in Malawi, contributed immensely to the derailment of shifting the HS from the centralised to the decentralised model of health service provision.