This study analyzes the effects of US drone strikes on terrorism in Pakistan and Afghanistan. Some theories suggest that drone strikes anger Muslim populations, and that consequent blowback incites Islamist terrorism. Others argue that drone strikes disrupt and degrade terrorist organizations, reducing their ability to conduct attacks. We use detailed data on U.S. drone strikes and terrorism in Pakistan and Afghanistan from 2004-2011 to test each theory’s implications. We find that drone strikes are associated with decreases in the incidence and lethality of terrorist attacks, as well as decreases in particularly intimidating and deadly terrorist tactics, including suicide and improvised explosive devices (IED) attacks. These results lend credence to the argument that drone strikes, while unpopular, have bolstered U.S. counterterrorism efforts in Pakistan and cast doubt on claims that drone strikes are militarily ineffective.