Is foreign aid effective in reducing terrorism? The existing evidence is mostly negative. We argue that this pessimistic outlook on the efficacy of aid as a counterterrorism tool is partly a function of focusing on only one type of aid: economic aid. Governance and civil society aid can dampen the participation in and support for terrorism by altering the political conditions of a country. We expect countries that receive high levels of governance and civil society aid to experience fewer domestic terrorist incidents than countries that receive little or none. Using a sample of aid eligible countries for the period from 1997 to 2010, we find that governance and civil society aid is effective in dampening domestic terrorism, but this effect is only present if the recipient country is not experiencing a civil conflict. Our findings provide support for the continued use of democracy aid as a counterterrorism tool.