There are many occasions on which the magnetotelluric impedance tensor is affected by local galvanic distortion (channeling) of electric currents arising from induction in a conductive structure which is approximately two-dimensional (2-D) on a regional scale. Even though the inductive behavior is 2-D, the resulting impedance tensor can be shown to have three-dimensional (3-D) behavior. Conventional procedures for rotating the impedance tensor such as minimizing the mean square modulus of the diagonal elements do not in general recover the principal axes of induction and thus do not recover the correct principal impedances but rather linear combinations of them. This paper presents a decomposition of the impedance tensor which separates the effects of 3-D channeling from those of 2-D induction. Where the impedance tensor is actually the result of regional 1-D or 2-D induction coupled with local frequency independent telluric distortion, the method correctly recovers the principal axes of induction and, except for a static shift (multiplication by a frequency independent real constant), the two principal impedances. Also obtained are two parameters (twist and shear), which partially describe the effects of telluric distortion. It is shown that the tensor operator which describes the telluric distortions can always be factored into the product of three tensor sub-operators (twist, shear, local anisotropy) and a scalar. This product factorization allows assimilation of local anisotropy, if present, into the regional anisotropy. The method of decomposition is given in the paper along with a discussion of the improvements obtained over the conventional method and an example with real data. ¿ American Geophysical Union 1989