The Local Government Act of Bhutan (Dzongkha: འབྲུག་གི་ས་གནས་གཞུངས་སྤྱི་མོ་ཅན་མ་; Wylie: 'brug-gi sa-gans-gzhungs can-ma) was enacted on September 11, 2009, by parliament of Bhutan in order to further implement its program of decentralization and devolution of power and authority. It is the most recent reform of the law on Bhutan's administrative divisions: Dzongkhags, Dungkhags, Gewogs, Chiwogs, and Thromdes (municipalities). The Local Government Act of Bhutan has been slightly amended in 2014.

The Local Government Act of 2009 establishes local governments in each of the twenty Dzongkhags, each overseen ultimately by the Ministry of Home and Cultural Affairs. The Act tasks all local governments with a variety of objectives, including promoting Gross National Happiness; providing democratic and accountable government; preserving culture and tradition; promoting development; protecting public health; and discharging any other duties specifically created by other law. Local governments are generally headed by a chairperson and a deputy chairperson who lead, represent, and manage their respective bureaucracies, each answering to the body above it and to parliament of Bhutan. All local governments are administrative divisions and are prohibited to make laws, however they are empowered to make rules and regulations consistent with law as established by parliament. Members of all local governments must be between ages 25 and 65, and sit for five-year terms, or until the local government is dissolved.

The Act establishes Dzongkhag Tshogdu (District Council) as the highest decision making body in the Dzongkhag. The Dzongkhag Tshogdu is composed of the Gup and Mangmi (elected leaders) from each Gewog, one representative from that Dzongkhag Thromde, and one representative from the Dzongkhag Yenlag Thromdes. Dzongkhag Tshogdus are tasked with balancing socio-economic development; promoting business; protecting consumers; coordinating government agency activities; reviewing Gewog regulations and ordinances; and representing the Dzongkhags in national referendums. The Dzongkhag Tshogdus are empowered to enforce rules on health and public safety; to regulate environmental pollution, advertising in regard to environmental aesthetics; to regulate broadcast media in accordance with the Information, Communications, and Media Act; and to regulate gambling. Dzongkhag Tshogdus also bear the responsibility for their own finances. The Dzongkhag Tshogdus also oversee Dzongdags (governors), royal appointees who are the executive of each Dzongkhag. Dzongdags, in turn, are responsible for maintaining law and order, and for enforcing the driglam namzha laws.

The analogous body at the Gewog level is the Gewog Tshogde, composed of the Gup and Mangmi, plus five to eight more elected Tshogpas (councilmen). Gewog Tshogdes are, like Dzongkhag Tshogdus, responsible for enforcing rules on public health and safety and tasked with encouraging economic development. Gewog Tshogdes further regulate drinking and irrigation waters, mines, recreational areas, construction, land use, and agricultural activities in relation to the Forest and Nature Conservation Act. Gewog governments formulate five-year development plans, run their own budgets, and raise their own labor for public projects. These budgetary and developmental functions are subject to the approval and review of the Ministry of Finance. Gewog Tshogdes are empowered to levy taxes on land, buildings, cattle, grazing, entertainment, advertisement (other than in newspapers, print, radio, and internet), and anything else designated by parliament.

The Act of 2009 presents no substantive change from previous law regarding the Dzongkhag Tshogdu, Gewog Tshogde, terms of local offices, and qualifications for office. Subordinate municipal divisions, however, are completely re-written.

Under the Act of 2009, a senior decision making body is established for some Thromdes (municipalities), the lowest level of administration. This body, called the Thromde Tshogde, is composed of seven to ten elected members and headed by a Thrompon. Every Thromde is classified as one of two types: Dzongkhag Yenlag Thromde and Dzongkhag Thromde; the latter is further subdivided into Class B Thromde and Class A Thromde based on population, development, and economy. Class A, or highest developed, Thromdes are allowed their own elected Thromde Tshogde; Class B Thromdes and Yenlag Thromdes are governed directly by either the Dzongkhag or the Gewog administration. From time to time, Parliament decides the boundaries of Thromde in consultation with the National Land Commission Secretariat and local authorities.

Thromde Tshogdes are empowered to regulate advertising, enforce public health and safety rules, and to levy taxes on land, property, property transfer (sales tax) and, "betterment." The municipal governments are also authorized to levy special taxes on vacant and underdeveloped land to encourage development, and to raise and spend money in to promote local economic development.

The Act of 2009 also codifies procedures for the dissolution of local governments, referenced but unspecified in previous legislation. Votes of confidence may be initiated by local populations when a written appeal convinces the Election Commission of Bhutan that more than half the population desires a poll. When the Commission approves a confidence poll, it is conducted within a month's time in the form of a yes–no question. At least two-thirds of any local population must vote "no" in order to dissolve the local government. Local governments, once dissolved, must be reconstituted within ninety days.