The well-known contrast in Russian between palatalized and non-palatalized consonants originated roughly one thousand years ago. At that time consonants were allophonically palatalized before front vowels, as in danjI. When the ‘jer’ (high, lax) vowels disappeared in certain positions, the palatalization formerly triggered by the front jer remained, leading to a palatalization contrast across most consonant types, e.g., danjI ‘tribute’ vs. dan ‘given’ (< danʊ). At the same time or soon thereafter, a rule is said to have been established by which /i/ surfaced as [ɨ] after non-palatalized consonants, e.g., ot ɨmj enj i ‘on behalf of’ (< otʊ j enj i This paper analyzes these two sound changes within a version of Dispersion Theory (DT, Flemming 1995a) elaborated by Ní Chiosáin & Padgett (2001) and Padgett (1997, to appear). DT differs from other current models of phonology in its fundamentally systemic orientation: constraints evaluate not only isolated forms as is usual, but sets of forms in contrast. References to these systems of contrast is key to the statement of constraints governing the perceptual distinctiveness of contrasts on the one hand, and constraints directly penalizing merger (neutralization) on the other. The analysis of the Russian facts here illustrates how this theory works, and provides an explanation for the otherwise mysterious allophonic /i/→ [ɨ] rule, and for the historical emergence of this rule as a consequence of the loss of the jers.