Yeltsin was demoted to a deputy minister for construction but then staged the most remarkable comeback in Soviet history. His popularity with Soviet voters as an advocate of democracy and economic reform had survived his fall, and he took advantage of Gorbachev's introduction of competitive elections to the USSR Congress of People's Deputies (i.e., the new Soviet parliament) to win a seat in that body in March 1989 with a landslide vote from a Moscow constituency. A year later, on 29 May 1990, the parliament of the Russian SFSR elected him president of the Russian republic against Gorbachev's wishes. In his new role, Yeltsin publicly supported the right of Soviet republics to greater autonomy within the Soviet Union, took steps to give the Russian republic more autonomy, and declared himself in favour of a market-oriented economy and a multiparty political system.

In July 1990 Yeltsin quit the Communist Party. His victory in the first direct, popular elections for the presidency of the Russian republic (June 1991) was seen as a mandate for economic reform. During the brief coup against Gorbachev by hard-line communists in August 1991, Yeltsin defied the coup leaders and rallied resistance in Moscow while calling for the return of Gorbachev. When the coup crumbled a few days after it had begun, Yeltsin emerged as the country's most powerful political figure. In December 1991 he and the presidents of Ukraine and Belarus (Belorussia) established a new Commonwealth of Independent States that would replace the foundering USSR. When the Soviet Union collapsed after Gorbachev's resignation as Soviet president on December 25, the Russian government under Yeltsin's leadership then assumed many of the former superpower's responsibilities for defense, foreign affairs, and finance.

As president of an independent Russia, Yeltsin set about the formidable task of transforming his country's decaying command economy into one based on free markets and private enterprise. Early in 1992 he ended government price subsidies and controls over food and other consumer goods, while also allowing the unhindered growth of free markets in the cities. At the same time, Russia's parliament, the Congress of People's Deputies, had grown increasingly hostile toward his free-market reforms. Yeltsin and the Congress were also deeply divided over the question of the balance of powers in Russia's proposed new constitution, which was needed to replace the obsolete 1978 Soviet-era Russian Constitution. On 21 September 1993, Yeltsin unconstitutionally dissolved the Congress and called for new parliamentary elections. In response, hard-line legislators attempted a coup in early October but were suppressed by army troops loyal to Yeltsin. Parliamentary elections and a referendum on a draft constitution were held in December. Yeltsin's draft constitution, which increased the powers of the presidency, was narrowly approved, but the antireform character of Russia's newly elected parliament, the Federal Assembly, compelled Yeltsin to govern primarily by executive decree in the coming years.

In December 1994 Yeltsin sent Russian army troops into Chechnya, which had unilaterally seceded from Russia in 1991. The army proved unable to completely suppress the rebels, however, and the war further eroded Yeltsin's declining popularity. The war in Chechnya and the failure of his free-market reforms to spur economic growth dimmed Yeltsin's prospects for reelection to the Russian presidency. In another spectacular comeback, however, he won reelection over a communist challenger in the second round of elections held in July 1996. He spent the months after his electoral victory recovering from a heart attack he had suffered that June during the rigours of the campaign. The state of Yeltsin's health was a recurring issue.

Early in his second term, Yeltsin signed a cease-fire agreement with Chechnya and in 1997 negotiated a peace treaty; tensions, however, continued. In August 1999 Islamic rebels from Chechnya invaded Dagestan, and the following month a series of bombings in Russia were blamed on Chechens. Soon after, Yeltsin ordered the return of troops to the republic. In the late 1990s political maneuvering dominated much of the country's government as Yeltsin dismissed four premiers and in 1998 fired his entire cabinet, though many were later reappointed. The following year the State Duma initiated an impeachment drive against Yeltsin, charging that he had encouraged the breakup of the Soviet Union in 1991, among other allegations. The Duma, however, was unable to secure the necessary votes to proceed. Ever unpredictable, Yeltsin announced his resignation on 31 December 1999, in favor of what he characterized as a new, energetic leadership. He named Prime Minister Vladimir V. Putin acting president, and in turn Putin granted Yeltsin immunity from future prosecution.