Russian President Vladimir Putin has made federal reform one of his key priorities, and his first serious action, taken just a couple of days after his inauguration, was the introduction of a new system of seven enlarged federal districts. In five cases, the presidential envoys appointed to these districts were generals, who hand-picked their deputies and staff mostly from the ranks. The majority of the chief federal inspectors in the regions also come from established ‘power structures’. In this article, the seven federal districts are described, and an analysis is made of the essence of the reform, the way it is proceeding, its effectiveness, and its future prospects. The forceful start of the federal reform in 2000 noticeably reduced the development of regional trends in Russia and strengthened central control; however, in 2001 the reform lost much of its dynamism, and the need for the new level of territorial organization remains questionable. It is argued that, whatever the Kremlin’s initial plans and words, what is really happening is the insertion of police-state mechanisms into a delegative and declarative democratic state.