Despite having achieved an average life expectancy of 75 years, much the same as that of more developed countries, Mexico entered the 21st century with a health system marred by its failure to offer financial protection in health to more than half of its citizens; this was both a result and a cause of the social inequalities that have marked the development process in Mexico. Several structural limitations have hampered performance and limited the progress of the health system. Conscious that the lack of financial protection was the major bottleneck, Mexico has embarked on a structural reform to improve health system performance by establishing the System of Social Protection in Health (SSPH), which has introduced new financial rules and incentives. The main innovation of the reform has been the Seguro Popular (Popular Health Insurance), the insurance-based component of the SSPH, aimed at funding health care for all those families, most of them poor, who had been previously excluded from social health insurance. The reform has allowed for a substantial increase in public investment in health while realigning incentives towards better technical and interpersonal quality. This paper describes the main features and initial results of the Mexican reform effort, and derives lessons for other countries considering health-system transformations under similarly challenging circumstances.