During his rule, Toledo took charge of the government and implemented many reforms. He centralized colonial governmental functions and laid the foundation for the future administration of the viceroyalty. He established royal authority and Spanish dominance in the colony. He broke the power of the encomenderos, reducing them to obedient servants of the crown. He has been called "one of the great administrators of human times.
He worked hard to convert the Indigenous and provide them with religious training. Toledo added new laws and royal decrees regarding the Indians and their lands, and he gathered the natives into villages, or reducciones. He promulgated laws that applied to both Indians and Spanish alike. He tried to adapt the political and social structures of the Incas to life in the viceroyalty. He also reduced the old system of mita, or forced native labor. Under his reforms of the mita, no more than one seventh of the male population of a village could be conscripted, they could not be forced to work far from their native villages, and they were entitled to compensation for their labor. These reforms later were called the Toledo Reforms.
Toledo assigned Pedro Sarmiento de Gamboa the task of writing a chronicle of prehispanic times in Peru by compiling information given by some of the older survivors from that time. Sarmiento's work is considered an invaluable source of information for that period. Toledo sent the account to the King, in hopes that a museum would be founded.
He established the Inquisition in Peru in 1570. Jerónimo Luis de Cabrera founded the city of Córdoba (in modern-day Argentina) on July 6, 1573. Tarija and Cochabamba (both in modern Bolivia) were founded in 1574.
A detailed census was taken describing the different ethnic groups and their economic status. Toledo made an extensive tour of inspection of the colony, traveling over 8,000 km in more than five years. He was the only viceroy of Peru to undertake such a fact-finding mission. "His tour of inspection had convinced him that there were many abuses of power which needed correction and many flaws in the governmental machinery which needed repair.
He built fortifications on the coast for protection against pirates. He also established la Armada del Mar del Sur (the Southern Fleet) in the port of El Callao. (Sir Francis Drake was ravaging the coast of Peru in 1579.)
He built bridges and improved the safety of travel in the viceroyalty. The first coins minted for Peru (and indeed for South America) appeared between 1568 and 1570. The silver from mines at Potosí circulated around the world.
Philip II, however, disapproved of the execution. Toledo also made enemies through his reforms. The previous (interim) viceroy, Lope García de Castro, was one of them. García de Castro was now a member of the Council of the Indies, from which position he opposed most of Toledo's reforms. Some of the Spanish in Peru opposed the viceroy because of the loss of some of their privileges. Nevertheless, the royal revenue from Peru sent to Spain increased. The books were balanced for the first time in fifteen years, tax collection was regularized and enforced, and revenues from the silver mines increased.