By the time the impact of Mikhail Gorbachev's reform program in the Soviet Union was felt in Bulgaria in the late 1980s, the Communists, like their leader, had grown too feeble to resist the demand for change for long. In November 1989 demonstrations on ecological issues were staged in Sofia, and these soon broadened into a general campaign for political reform. The Communists reacted by deposing the decrepit Zhivkov and replacing him with Petur Mladenov, but this gained them only a short respite. In February 1990 the Party voluntarily gave up its claim on power and in June 1990 the first free elections since 1931 were held, won by the BSP (former BKP). In July 1991 a new Constitution was adopted, in which there was a weak elected President against a Prime Minister, accountable to the legislature.

Like the other post-Communist regimes in eastern Europe, Bulgaria found the transition to capitalism more painful than expected. The anti-Communist Union of Democratic Forces (UDF) took office and between 1992 and 1994 carried through the privatisation of land and industry through the issue of shares in government enterprises to all citizens, but these were accompanied by massive unemployment as uncompetitive industries failed and the backward state of Bulgaria's industry and infrastructure were revealed. The Bulgarian Socialist Party (BSP) portrayed itself as the defender of the poor against the excesses of the free market. The reaction against economic reform allowed Zhan Videnov of the BSP to take office in 1995. But by 1996 the BSP government was also in difficulties, and in the presidential elections of that year the UDF's Petur Stoyanov was elected. In 1997 the BSP government collapsed and the UDF came to power. Unemployment, however, remained high and the electorate became increasingly dissatisfied with both parties.

This impasse provided an opportunity for the former Tsar Simeon II, who had left Bulgaria as a nine-year-old boy in 1946 and returned in 1996 as a wealthy 59-year-old businessman, Simeon Sakskoburggotski (a Bulgarian spelling of Saxe-Coburg). Sakskoburggotski formed a new party, the Movement for Simeon II, and swept both the major parties away in the elections of June 2001. As Prime Minister he has followed a strongly pro-western course, with Bulgaria joining NATO in 2004 and on track to join the European Union in 2007. Economic conditions have improved somewhat, although unemployment and emigration remain high. Sakskoburggotski says he has no interest in restoring the monarchy, but is thought likely to run for President in 2006, when the term of the BSP incumbent, Georgi Purvanov, expires.