AbstractThe paper examines the issues of structural organization and financing of the Panevėžys diocese that was established in 1926 and Bishop Kazimieras Paltarokas’s efforts to reinvigorate religious life, to educate and discipline the local clergy. During the period of 1926 to 1940, a sound foundation for a diocesan centre was laid (a functioning curia, a newly-built cathedral), although the process of its development was not completed as a diocesan seminary was still lacking. The contribution of the state to the shaping and functioning of the diocese was quite sizeable: despite complicated relations with bishops, the government of the Nationalist party fulfilled its financial commitments to the Church. The major part of ecclesiastical structures such as the curia of the Panevėžys diocese, the cathedral, parish priests, and Roman Catholic schools took advantage of state funding which, although not always sufficient, was quite adequate. Not subjected to close monitoring of expenditure, the funds guaranteed by the state treasury provided Bishop Paltarokas with some ‘free cash’ that enabled him to plan and carry out large construction projects. The bishop made efforts to stimulate ecclesiastical life in parishes, to educate and discipline the clergy, and to legalize church property. The reforms he had initiated were intended to encourage priests to participate in social and cultural life of the parishes and to raise the believers’ awareness of being Catholics. Unfortunately, the independent development of the diocese lasted only fourteen years before it was interrupted by Soviet occupation.