This research was undertaken to study the diffusion of E-government as a tool for decentralization, using Ghana as a case study. E-governance has been credited with the potency of facilitating good governance in countries with appreciable level of E-government maturity. Much attention is being given to E-governance by international and inter-governmental institutions. Decentralization has hitherto been the approach adopted to make government and its services accessible to the citizens, facilitate citizen participation and ensure accountability to the citizens. These are the same values espoused by E-government. This research therefore assesses the diffusion of E-government as a tool for decentralization in Ghana. The research was carried out using mixed-methods and was approached from four theoretical perspectives namely Innovation Diffusion theory the TOE framework for technological innovation, Stakeholder and Institutional theories. A conceptual Model, the Technological, Organizational, Political and Stakeholder (TOPS) was developed based on the theories to assess the e-readiness of local government departments and agencies for the diffusion of E-government. The constructs and predictor variables of the model were statistically validated using data collected from 43 Chief Information Officers (CIO) from both state and quasi-state institutions in Ghana. The validated TOPS model was used to assess the e-readiness of local government departments and agencies. The result shows low level of E-readiness among these institutions. Access to information and communication technology is no longer the dominant determinant of the low level of E-readiness among the sample due to increased access to mobile technologies. The dominant problems are largely institutional and political. Qualitative data was used to assess the factors affecting the diffusion of e-government as a tool for decentralization and the results pointed to vendor and donor led diffusion as affecting E-government implementation. There is also the absence of convergence between the E-government, the decentralization policies and their implementation. The study recommended awareness creation among the citizenry, and stakeholder analysis for E-government programs to facilitate widespread adoption. Increased government commitment as well as reengineering the existing governance structure is also recommended as measures that can facilitate effective diffusion of E-government which has the huge potential of being a catalyst to the decentralization process with its associated benefits.