This text examines the first official exhibition of the Yugoslav Association of Fine Artists, and the theoretical, socio-political, and institutional contexts of the Socialist Realist period in Yugoslav art (spanning roughly the years between1945 and 1954). Post-war artistic and cultural environment, the first exhibition, and critical aesthetic debates around Socialist Realism exemplify Yugoslavia's struggle to make sense of, and implement, Socialist Realism as an official artistic, cultural, and political category. Its development paralleled the state's own wrestling with notions of socialist governance and its proper implementation. Difficulties with Socialist Realist aesthetic and the ensuing paradoxes in its adaptation in Yugoslav art are at the core of the dialogs, theoretical discourses, and critical responses to the first exhibition. My analysis uses accounts and reviews of the exhibition, as well as official writings and arguments presented by the state and cultural officials to argue that Yugoslav art of the time was in fact transgressive, a hybrid of modernism and Socialist Realism. Rather than reading its hybridity as a failure, as some have argued, I read the hybridity of Yugoslav art as a space of possibilities that would have opened a new art praxis in Yugoslavia of the time.