Ernesto, which had been rated a category one hurricane by the US National Hurricane Center (NHC), was downgraded to a tropical storm, but forecasters warned it could gain strength later in the day when it moves over water.
The storm, which was now packing maximum sustained winds of 110 kilometers (70 miles) per hour, was then expected to hit land a second time, on Mexico's Gulf coast, forecasters said.
Ernesto -- the second hurricane of the Atlantic season -- made landfall late Tuesday near the town of Mahahual in Mexico's Quintana Roo state, the Miami-based NHC said, citing radar data from Belize.
At 0900 GMT, the eye of the storm was located 85 kilometers west of Chetumal, the capital of Quintana Roo state, and was moving to the west at a speed of 24 kilometers per hour, the center said.
"Additional weakening is expected as Ernesto moves over land this morning," the NHC said.
"Restrengthening is forecast after the center emerges over the Bay of Campeche and Ernesto could regain hurricane strength before landfall on Thursday."
The Yucatan peninsula is home to bustling holiday destinations such as the resort city of Cancun and the island of Cozumel, but authorities in Quintana Roo state noted that there were few tourists in the area where the storm hit.
Nevertheless, state tourism secretary Juan Carlos Gonzalez said more than 200 emergency shelters had been set up to accommodate more than 80,000 people if necessary.
Mexico's defense ministry said it had mobilized about 1,000 soldiers to remain on alert in the area.
Authorities in Mexico shifted the hurricane warning to the country's Gulf coast, with other areas now under a tropical storm warning. Neighboring Belize remained under a hurricane warning.
The storm, which began drenching Caribbean countries last week, was expected to dump eight inches of rain (30 centimeters) on areas of Belize, Guatemala and Mexico, with up to 12 inches of rain in isolated areas. Honduras was also hit.
"These rains may produce life threatening flash floods and mudslides over higher terrain," the NHC added.
This is the second hurricane, and the fifth named storm, in the Atlantic Ocean since the season began on June 1.
Chris, which strengthened to hurricane force on June 21, stayed far off land, and vanished without causing any damage.