Abstract The existence of local governments is crucial for community development, effective delivery of public services, democratization and intensification of mass participation to which well structured and functional LGs are needed. The purpose of this research was to explore the motives as well as the attendant challenges and the likely prospects of restructuring the former North Gondar Administrative Zone. To achieve the intended objective, the study employed qualitative case study design relying on a range of primary and secondary sources of data. While the primary data were collected through interviews with higher officials in the regional state and in the three local governments as well as from civil servants and local residents, the secondary data have been gathered from documentary review. Purposive, snowball and available sampling techniques were employed to select government officials, civil servants, senior officials and residents respectively to gather the primary data. The data collected from both primary and secondary sources were thematically analyzed. The findings of the study revealed that restructuring the FNGAZ in three local governments was motivated by administrative convenience, providing public services with proximity and mobilizing local resources for development. The research also investigated the challenges encountered following the implementation of the restructuring measure. Accordingly, politicizing the restructuring effort, merging the different sector offices in a single department and inadequate human and material resources are among the challenges observed after the commencement of the restructuring measure. The major conclusion drawn from the findings of the research is that although restructuring the old local government was found to be significant, the newly restructured local units were not organized along with the formal zonal structures and resource requirements. Thus, the study recommends the regional state to provide the local governments with appropriate zonal structures both in sector offices and resource supplies. Key words: Restructuring, Local government, Zone, Woreda