We exploit a unique institutional feature in the state of Oaxaca,  Mexico,  where municipalities were allowed to choose between a form of autonomy called “usos y costumbres” or delegating decisions to “modern” forms of representative government. Using a geographic discontinuity approach to identify causal effects,  we find strong evidence that political autonomy enhances development outcomes for indigenous communities. To explore plausible mechanisms,  we collected a household survey in over 90 villages. In autonomous villages,  direct participatory democracy practices lead to a more egalitarian distribution of services with a less notable anti-poor bias.