Optimization of the power organization in the state is a comprehensive step towards the formation of fully functional local governments and an effective system of administrative and territorial organization of the state. By deciding on decentralization, Ukraine has chosen a model of local government completely different from that of the early 1990s. In the presented article, based on the conducted research, an analysis of the genesis of scientific approaches to understanding the process of decentralization was made. The essence, periodization and stages of decentralization of power in Ukraine, its main features and the purpose of application in relation to local government were determined. The key opportunities provided by decentralization for the development of local governments were shown, as well as problems related to the choice of such a form of decentralization that would optimally take into account the resource potential of a given territory. The main challenges facing local governments and the central government in the process of implementing the decentralization reform of the national economy, especially during martial law, were also identified. It was stated that effective implementation of the decentralization reform is possible only with a cohesive community of residents, strong institutions and efficient public administration.