Twenty-five years after the fall of the Berlin wall the process of building the rule of law in post-Communist Europe is facing serious challenges. The analysis of this period clearly shows that organizing free and democratic elections is easier than creating constitutional democracy based on the rule of law. Rule-of-law institutions are often weak or underdeveloped, and hence fail to fulfill their essential function, i.e. to limit the abuse of uncontrolled state power. The current rule of law crisis in the region originates from certain structural features of the transition in Central and Eastern Europe. The single most important factor contributing to the current democratic setback is a failure of institutionalization of the rule of law and effective state institutions, which, together with democratic accountability, form modern liberal democracy. The reformers in the region too often neglected the importance of the 'homegrown development' and the need to adapt Western models to local conditions and needs. Many rule of law institutions created during the last 25 years need further reforms. It is time for real democratic deliberation and experimentation, which could usher in much needed institutional reforms in the region. In order to improve the rule-of-law institutions, we must not start from some idealized 'best model', but from the existing context in which these institutions function. New rule of law institutions in CEE may in the end resemble their Western models. But what is more important is that they actually work well for CEE, even if they look different than their Western counterparts.