This paper describes the current state of governance and reforms of Indonesia's higher education system. It seeks to identify the impact of and the constraints on the national higher education reform agenda with respect to institutional autonomy for public universities. Under the prevailing government regulations, 11 public universities have been converted to autonomous institutions and given financial and organizational autonomy. Financial autonomy means a change of the public funding mechanism from line-item budgeting to lump-sum funding, thereby accentuating the importance of outputs and performance, competition and market orientation. In response, the need for a spirit of innovation to increase research outputs and to achieve internationalization has become an important driver for universities. Managerial autonomy entails a loosening of state control in internal university governance. In autonomous universities, the Board of Trustees now holds most authority, representing a range of stakeholders, including the Government which appoints 35% of the members.