In post-conflict societies, decentralization is often used as a conflict management tool to address territorial claims and interests. The latest example is the agreement between the Republics of Serbia and Kosovo of April 2013 over the status of four Kosovar municipalities which remained under de facto control and jurisdiction of Serbia. Nevertheless, there is a lack of comprehensive research on the long-term effects of decentralization on ethnic conflict. To contribute to filling this research gap, this paper focuses on the impact of decentralization on the establishment of sustainable peace through conflict transformation. Based on the theory on decentralization in post-conflict institution-building, two models of decentralization are developed. While the first model focuses on conflict management through the separation of ethnic groups, ethnic selfrule and conflict resolution on the level of political elites, the second model focuses on conflict transformation at the local level through initiating contact, cooperation and trust-building in local institutions. As a case study the paper examines the decentralization process in the Republic of Kosovo, which entails both models of decentralization. To investigate the hypothesis that the Kosovar decentralization process has already supported and continues supporting conflict transformation, the paper analyzes 16 interviews with representatives of international and Kosovar NGOs and think tanks, international organizations and governmental agencies working in the field of decentralization. It focuses on 34 municipalities in which the decentralization program had already been implemented in 2011 and thus leaving aside the situation in the four municipalities mentioned above. The paper concludes that ethnic conflict in Kosovo is still far from being transformed. Nevertheless, decentralization has contributed to the development of an institutional setting allowing for the transformation of the ethnic conflict. Where implemented, decentralization has promoted the acceptance of the Republic of Kosovo among nonmajority communities. When looking at the two models of decentralization, it can be noted that ethnically heterogeneous municipalities following the second model have been able to facilitate cooperation between representatives of ethnic groups while homogenous municipalities have hardly contributed to conflict transformation.