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Most scholarly literature explores the relationship between regime type and terrorism, while little attention has been paid to the influence of regime on terrorist groups’ decision to engage in civil war. This paper argues that the onset of civil war involving terrorist organizations is conditioned by regime type. Democratic institutions create conditions that prevent the onset of civil war involving terrorist organizations, although similar institutions might provide the opportunities for such groups to emerge in the first place. The pacifying effect of democracy on terrorist organizations’ decision-making calculus is tested on a global dataset of terrorist organizations between 1970 and 2012. The results show that democratic institutions such as rule of law, civil liberties and political rights indeed lead to a lower likelihood of civil war onset involving terrorist organizations. Democracies often fail to prevent formation of terrorist organizations, and, consequently, most democracies experience terrorist attacks on their citizens at home. Interestingly, democratic institutions can stop those groups from transitioning to rebels and engaging a democratic state in civil conflict. Consequently, the spread of democracy appears to be a sound foreign policy choice in preventing escalation of terrorist violence to the level of civil war.