Democracy is one of the most consistent predictors of terrorism. Yet we know little about why there is an apparent relationship between terrorism and democracy. In this article, I argue that previous democratic breakdown is a significant predictor of terrorism. While democratic civil liberties increase the opportunity to carry out terrorist attacks, they do not explain why groups are motivated to use terrorism rather than legal means for implementing change. Democratic breakdown, however, creates grievances that motivate terrorism by excluding groups with full rights of participation from the political process. Such grievances, which persist over long periods of time, will lead to high levels of terrorism once the regime re-democratizes, since the motivation for political violence is combined with the opportunities provided by democratic civil liberties. Cross-national statistical evidence from 1970 to 2007 lends strong support for this argument. It further demonstrates that only democracies that have experienced democratic breakdown experience more terrorism than autocracies. Moreover, an extreme bounds analysis indicates that previous democratic breakdown is one of the most robust predictors of terrorism and the most robust among variables conceptually related to democracy.