During the first months of 1933, when it became evident that Uruguay would have serious difficulties in paying the interest on its foreign debt, Terra obtained the support of Herrera and of Manini to organize a coup d'état. On March 31, 1933, Terra dissolved the General Assembly and the colegiado and governed by decree. Former President Brum (a Batllist) committed suicide one day after the fall of the liberal democratic regime. Another Batllist leader, Grauert, was assassinated. The Terra regime deported numerous opposition leaders and imposed press censorship.

In June 1933, elections were held for a constituent assembly that would be responsible for reforming the constitution. In 1934 the new constitution was submitted to a plebiscite, and although reelection of the president was unconstitutional, Terra was elected to a new term. More than half of the electorate participated in these elections, distributing their preferences between parties supporting the coup and those opposing it. The constitution promulgated in 1934 formally eliminated the colegiado and transferred its powers to the president. The new constitution restricted the creation of autonomous entities by requiring approval by a two-thirds majority in each chamber of the General Assembly. It banned usury, recognized certain social rights (e.g., housing and the right to work), and established women's suffrage. The cabinet ministers and heads of autonomous enterprises were to be distributed between the two parties obtaining the most votes, in a two-thirds to one-third ratio. The Senate was to be divided in half between the two parties winning the most votes, thus ensuring control by the coup factions. The Chamber of Representatives was to be elected by proportional representation.

In the mid-1930s, the opposition tried, unsuccessfully, to organize itself and resist the regime in the face of persecution. Military and armed civil uprisings were suppressed. In 1935 a political opponent unsuccessfully tried to assassinate Terra. An attempt to form a "popular front," including the left and dissident Colorados and Blancos, was also unsuccessful. To prevent this coalition, as well as a coalition of sectors from the traditional parties, from opposing the regime's social and economic policies, a series of electoral laws was promulgated beginning in 1934. The new Political Parties Law granted control of the Colorado and Blanco slogans, or party titles, to those who had participated in the elections and therefore supported the dictatorship.

Support from ranchers, one of the sectors most affected by the crisis, seemed to indicate a return to the traditional agro- exporting model. However, neither the "machete dictatorship" (an ironic name given to the regime by the socialist leader and writer Emilio Frugoni, referring to Terra's use of the police during the coup) nor the "March Revolution" (as it was solemnly called by its organizers) stressed an agrarian alternative because unemployment seemed to call for a diversification of the job market. Moreover, Uruguay was already an urban country with budding industrialization.