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Political instability as one the domestic factors has the nearest interaction with the concept of economic security in influencing on production factors. In developing countries, uncertainty is created in an unstable political environment and violent behavior atmosphere. It results in reduction in the investment levels, failure in attracting foreign capital, and capital flight. Terrorism is one of the important political risk indicators. This study examines the effect of terrorism on inward foreign direct investment (FDI) in the Middle East region. The statistical sample includes Iran, Bahrain, Egypt, Kuwait, Saudi Arabia, Syria, Jordan, and Turkey over the period 1970-2008. Using panel data method, findings show that Terrorism has negative impact on FDI in selected countries. Adversely, GDP and Openness degree have positive impact on FDI.