Pharmaceutical policy in Italy has been reshaped as a result of the 1993-4 crisis in which it was revealed that pharmaceutical companies, policy makers and top Department of Health officers had constructed an illegal system to set prices. Following this crisis, the rise of technical competency and leadership in the Italian Department of Health and, since 2000, in the Drug Regulatory Agency (Agenzia Italiana del Farmaco; AIFA) has achieved major improvements in many aspects of Italian pharmaceutical policy. These improvements have included increased transparency of decision making, the use of evidence-based medicine principles for reimbursement and pricing, and the use of generic drugs to lower prices.As a result of these changes, pharmaceutical expenditure has been controlled and equity has improved, mainly because co-payments have been reduced, thus reducing private expenditure on reimbursable drugs. However, a short-term approach to cost containment has prevailed, and Italian pharmaceutical policy has neglected industrial parameters. Hence, the trend in pharmaceutical expenditure has been erratic, and Italy has not favoured localization of research and development and production in its territory. The dominant issue of Italian health policy in recent years has been devolution of powers to regions, the intermediate tier of the Italian State. Overall, devolution has increased regional accountability on healthcare spending. However, regions react to enhanced freedom in different ways, reflecting their institutional capacity and competencies. This process has also affected pharmaceutical policy, more than in other decentralized healthcare systems (such as Germany and Spain). Such a situation is causing increasing regional variations and geographical equity concerns. In addition, the regional level appears rather inadequate to promote an industrial perspective unless it is supported by national initiatives.