The shah's son and successor, Muzaffar ad Din (1896-1907), was a weak and ineffectual ruler. Royal extravagance and the absence of incoming revenues exacerbated financial problems. The shah quickly spent two large loans from Russia, partly on trips to Europe. Public anger fed on the shah's propensity for granting concessions to Europeans in return for generous payments to him and his officials. People began to demand a curb on royal authority and the establishment of the rule of law as their concern over foreign, and especially Russian, influence grew.

The shah's failure to respond to protests by the religious establishment, the merchants, and other classes led the merchants and clerical leaders in January 1906 to take sanctuary from probable arrest in mosques in Tehran and outside the capital. When the shah reneged on a promise to permit the establishment of a "house of justice," or consultative assembly, 10,000 people, led by the merchants, took sanctuary in June in the compound of the British legation in Tehran. In August the shah was forced to issue a decree promising a constitution. In October an elected assembly convened and drew up a constitution that provided for strict limitations on royal power, an elected parliament, or Majlis (see Glossary), with wide powers to represent the people, and a government with a cabinet subject to confirmation by the Majlis. The shah signed the constitution on December 30, 1906. He died five days later. The Supplementary Fundamental Laws approved in 1907 provided, within limits, for freedom of press, speech, and association, and for security of life and property. According to scholar Ann K.S. Lambton, the Constitutional Revolution marked the end of the medieval period in Iran. The hopes for constitutional rule were not realized, however.

Muzaffar ad Din's successor, Mohammad Ali Shah, was determined to crush the constitution. After several disputes with the members of the Majlis, in June 1908 he used his Russian-officered Persian Cossacks Brigade to bomb the Majlis building, arrest many of the deputies, and close down the assembly. Resistance to the shah, however, coalesced in Tabriz, Esfahan, Rasht, and elsewhere. In July 1909, constitutional forces marched from Rasht and Esfahan to Tehran, deposed the shah, and reestablished the constitution. The ex-shah went into exile in Russia.

Although the constitutional forces had triumphed, they faced serious difficulties. The upheavals of the Constitutional Revolution and civil war had undermined stability and trade. In addition, the ex-shah, with Russian support, attempted to regain his throne, landing troops in July 1910. Most serious of all, the hope that the Constitutional Revolution would inaugurate a new era of independence from the great powers ended when, under the Anglo-Russian Agreement of 1907, Britain and Russia agreed to divide Iran into spheres of influence. The Russians were to enjoy exclusive right to pursue their interests in the northern sphere, the British in the south and east both powers would be free to compe6eb pete for economic and political advantage in a neutral sphere in the center. Matters came to a head when Morgan Shuster, a United States administrator hired as treasurer general by the Persian government to reform its finances, sought to collect taxes from powerful officials who were Russian protégés and to send members of the treasury gendarmerie, a tax department police force, into the Russian zone. When in December 1911 the Majlis unanimously refused a Russian ultimatum demanding Shuster's dismissal, Russian troops, already in the country, moved to occupy the capital. To prevent this, on December 20 Bakhtiari chiefs and their troops surrounded the Majlis building, forced acceptance of the Russian ultimatum, and shut down the assembly, once again suspending the constitution. There followed a period of government by Bakhtiari chiefs and other powerful notables.

Data as of December 1987