During socialist Yugoslavia, Račan was a member of the League of Communists of Croatia. He became its leader in 1989, and led the Croatian delegation in the crucial congress of the Communist Parties of Yugoslavia when Slovenian and Croatian delegations refused further cooperation with the Serbian Communist Party led by Slobodan Milošević.
Following the fall of Communism, he subsequently became the leader of the transformed communist party then called League of Communists of Croatia -- Party of Democratic Changes. They lost the multi-party elections of 1990 but remained in parliamentary opposition. Račan became (in)famous for stating publically how they thought that the winner of the elections, the nationalist Croatian Democratic Union, was a party of dangerous intentions.
In 1994 they merged with the Social Democrats of Croatia to form the Social Democratic Party of Croatia (SDP), with Račan its president.
After his party, in coalition with the Croatian Social Liberal Party (HSLS), won the elections in 2000, he became the prime minister of Croatia. His government included ministers from SDP, HSLS, Croatian Peasants Party (HSS), the Liberal Party (LS), Croatian People's Party (HNS), Istrian Democratic Congress (IDS).
The latter party later left the coalition government, but it caused no major upheaval as they were a minor participant. Račan's style of leadership was generally considered rather withdrawn for a premier, but he was nevertheless able to maintain a parliamentary majority.
Račan briefly resigned on July 5, 2002 after their coalition partner HSLS obstructed the ratification of a vital agreement on the status of Croatia's only nuclear power plant Krško which is co-owned with Slovenia. The HSLS later split into the main faction that left the government and a dissenting faction that formed a new party called Libra which enabled Račan to form a slightly modified government that would remain in power until the next elections.
His center-left coalition lost the parliamentary majority with the November 2003 elections. Ivica Račan ceased to be the prime minister on December 23rd, 2003 when Croatian Parliament gave its consent for his successor, Ivo Sanader of the Croatian Democratic Union.