We propose a microscopic theory for the decoupling of self-diffusion and structural relaxation in glass-forming liquids within the Elastically Collective Nonlinear Langevin Equation (ECNLE) activated dynamics framework. Our central hypothesis is that the heterogeneity relevant to this problem is static fluctuations of local density on the scale of 3–4 particle diameters and how this changes local packing correlations. These fluctuations modify the degree of dynamical cage expansion that mechanistically couples intracage large amplitude hopping and longer range collective elasticity in ECNLE theory. Decoupling only emerges in the deeply supercooled regime where the strongly temperature dependent elastic barrier becomes non-negligible relative to its noncooperative local analog. The theory makes predictions for various aspects of the decoupling phenomenon, including apparent fractional power law Stokes-Einstein behavior, that appear to be consistent with experiments and simulations on hard sphere fluids and molecular liquids. Of central importance is a microscopic connection between the barrier fluctuation variance and most probable barrier height. Sensible results are also obtained for the nonexponential stretching of a generic relaxation time correlation function and its temperature evolution. Nonuniversality can arise from the relative importance of the local and collective barriers (related to fragility) and the precise magnitude of the length scale that defines the transition from local cage to elastic physics. Comparison is made with a traplike model based on a Gaussian distribution of barriers.