This article studies the various mechanisms by which democracy affects transnational terrorism. New theoretical mechanisms are identified that either complement or encompass existing arguments. Different effects of democracy on transnational terrorism are assessed for a sample of about 119 countries from 1975 to 1997. Results show that democratic participation reduces transnational terrorist incidents in a country, while government constraints increase the number of those incidents, subsuming the effect of press freedom. The proportional representation system experiences fewer transnational terrorist incidents than either the majoritarian or the mixed system.