In the last decades, Spain and Italy have gone through a process of decentralization of social policies. In the 1990s and the 2000s, there was a reinforcement of this process that was also characterized by the expansion of welfare expenditure at the regional level. However, during the Great Recession, central governments in both countries have imposed limits to the funding, regulation, implementation and coordination of social policies that were responsibility of subnational governments. This article addresses two research questions: How did the Great Recession influence the territorial organization of the Welfare State in Spain and Italy? What variables explain the re-centralization of social policies in the context of austerity? The article answers these questions by analyzing different social policy reforms implemented by Spanish and Italian central governments during the Great Recession. With this objective, we use a historical institutionalist perspective and process tracing methods (Pierson, 2000). The article shows that the territorial governance of the Welfare State was transformed during the crisis with a clear tendency towards the recentralization of social policies in both countries. However, we observe different levels of decentralization depending on the dimension analyzed: decisional, funding and implementation. We argue that the decentralization of social policies was the result of the external economic pressures, the role of European institutions and the ideological preferences of political parties in the central governments. Nevertheless, we also argue that these factors were mediated by the territorial identities of subnational units and the path dependency dynamics of the institutions that regulate social policies in both countries.