In December 1990, widespread civil unrest forced President Ramiz Alia to allow multiparty elections. He acted quickly to reorganize the cabinet, and Fatos Nano was among his appointments. Nano, named secretary general of the Council of Ministers, served briefly as deputy prime minister for economic reform in the months leading up to the March 1991 elections. Since then, Fatos Nano has never been far from the political fray in Albania.
Although the fairness of the 1991 election—the first multi-party election in over five decades—was questioned by outside observers, the voting was viewed as a first step in Albania's transition to democracy. The Albanian Workers Party (later renamed the Albanian Socialist Party—PS) won two-thirds of the vote and formed a government under Fatos Nano. Following large-scale strikes and demonstrations, the Nano government ceded power in June 1991, and Nano resigned.
The Albanian Workers Party reorganized as the Socialist Party and held its founding congress in June 1991. Nano, after having been forced to resign the prime minister post, was elected chairman of the PS, and won election to Parliament. The coalition government included the PS and the opposition PD. Nano won reelection to Parliament in 1992, but he was unable to fulfill his term. In July 1993, he was arrested on charges of corruption, including misappropriation of state funds, dereliction of duty, and falsifying documents. He was found guilty and sentenced to 12 years in prison. Amnesty International and other human rights groups declared the trial improper. While in prison, Nano was reelected chair of the PS in August 1996.
The economic crisis caused by the collapse of the pyramid investment schemes triggered widespread social unrest. In early March 1997, desperate to restore order, President Berisha dismissed the Meksi government, released Fatos Nano and others from prison, and issued pardons. Berisha then appointed Nano prime minister. Berisha and Nano agreed to hold parliamentary elections by June 1997. Nano was named prime minister, but his term would last just until October 1998, when continuing upheaval in the government forced his resignation; the PS nominated Pandeli Majko to succeed him. In November, Nano resigned as head of the PS.
Although not officially leading the PS, Nano continued to wield power over the next 11 months. Nano supported the government headed by Prime Minister Majko, but his faction within the PS continued to battle head-to-head with the faction led by Ilir Meta. In the face of growing violent conflict between ethnic Albanians and Serbs in neighboring Serbia, President Rexhep Mejdani named Ilir Meta prime minister; Meta took office in October 1999. When the PS held their congress that month, Nano was returned to the chairmanship. Meta was unable to bring stability to the government, although his PS would maintain their dominant position in the Parliament, even with a slim majority (73 of 140 seats) following the June 2001 elections. Meta resigned in June 2002, to be replaced by Majko.
The loyalties of the PS representatives were divided between Meta and Nano. Majko was seen as a possible mediator between the two factions, and his confirmation by Parliament in March 2002 supported that hope. Nano was not inclined toward compromise or conciliation. PS infighting continued to exacerbate the country's ills.
On 15 July 2002, the PS's steering committee passed a resolution that the party's chairman should hold the post of prime minister. Ten days later, on 25 July 2002, Pandeli Majko resigned after only five months as prime minster. Majko stated that he hoped his resignation would bring an end to the conflict between factions of the PS. On 29 July, President Alfred Moisiu appointed Fatos Nano prime minister, and Nano took office two days later, on 31 July. Nano and Meta appear to have reached a delicate compromise. When Nano formed a government, it included Ilir Meta as deputy prime minister and foreign minister, and Pandeli Majko as minister of defense.