African historians generally agree that indigenous political structures (chieftaincy institutions) were central to the strategies of governance in colonial Yorubaland. While British colonial rule distorted chieftaincy structures, powerful obas (monarch), and chiefs deployed local political forces to advance their political status in a rapidly shifting colonial context. The fluid interactions among obas, chiefs, British administrators, and an indigenous Western educated elite was profoundly complicated by the new emphasis on development, democracy, and modern governance that nationalist elites insisted upon during the critical period of decolonization. Analyzed in the context of the prevailing political configurations of the indirect system in the Yoruba region, and the unfolding drama of an emergent postcolonial Nigerian state, I seek to critically discuss the following interrelated themes: traditional political authorities, decolonization, and the imperative of institutional transformation; chieftaincy politics and communal identities during the decolonization process; chieftaincy structures, state formation and the construction of Yoruba ethnic identity. Thus, the paper contend that it was the prevailing interpretations of traditional political authorities, the underlying neotraditional character of local communities, the evolving structural imbalance of Nigeria's diverse society, the complex processes of social stratification, and the pressing demands of a Yoruba nationalist elite for development and modern governance that transformed the institution of chieftaincy in Yoruba communities during the decolonization process.