Theocracy is a form of government in which the governmental rulers are identical with the leaders of the dominant religion, and governmental policies are either identical with or strongly influenced by the principals of the majority religion.
Typically the government claims to rule on behalf of God or a higher power, as specified by the religion in question.
There are different forms of theocracy. The most classical one is caesaro-papism, in which power is shared between a secular ruler (eg an emperor) and a religious leader (eg a pope). Theocracy can also be exercised directly by the clergy (eg Iran) or indirectly (see the divine right of kings).
This form of government was advocated by reformer John Calvin.