After the defeat of forces loyal to the Tokugawa shogunate during the Boshin War in 1868, the new Meiji government confiscated all lands formerly under direct control of the Shogunate (tenryō) and lands controlled by daimyos who remained loyal to the Tokugawa cause. These lands accounted for approximately a quarter of the land area of Japan and were reorganized into prefectures with governors appointed directly by the central government.

The second phase in the abolition of the han came in 1869. The movement was spearheaded by Kido Takayoshi of the Chōshū Domain, with the backing of court nobles Iwakura Tomomi and Sanjō Sanetomi. Kido persuaded the lords of Chōshū and of Satsuma, the two leading domains in the overthrow of the Tokugawa, to voluntarily surrender their domains to the Emperor. Between July 25, 1869, and August 2, 1869, fearing that their loyalty would be questioned, the daimyos of 260 other domains followed suit. Only 14 domains failed to initially comply voluntarily with the return of the domains, and were then ordered to do so by the Court, under the threat of military action.

In return for surrendering their hereditary authority to the central government, the daimyos were re-appointed as non-hereditary governors of their former domains (which were renamed as prefectures), and were allowed to keep ten percent of the tax revenues, based on actual rice production (which was greater than the nominal rice production upon which their feudal obligations under the Shogunate were formerly based).

The term daimyō was abolished in July 1869 as well, with the formation of the kazoku peerage system. In August 1871, Okubo, assisted by Saigō Takamori, Kido Takayoshi, Iwakura Tomomi and Yamagata Aritomo forced through an Imperial Edict which reorganized the 261 surviving ex-feudal domains into three urban prefectures (fu) and 302 prefectures (ken). The number was then reduced through consolidation the following year to three urban prefectures and 72 prefectures, and later to the present three urban prefectures and 44 prefectures by 1888.