This article assesses Iran’s strategy in dealing with the threat of the Islamic State in Iraq and Syria (ISIS). It examines the implications of the rise of ISIS in Iran’s immediate neighbourhood for Tehran’s policies in Syria and Iraq and investigates how each of these countries affects Iranian national interests. It provides an overview of the major events marking Iran and Iraq’s relations in the past few decades and discusses the strategic importance of Iraq for Iran, by looking at the two countries’ energy, economic and religious ties. It also considers Iran’s involvement in Syria since the beginning of the Syrian conflict. The article sheds light on the unilateral action taken by Tehran to counter ISIS, the adjustments it may have to make to its involvement in Syria, and the potential areas for tactical cooperation between Iran and the United States, as well as other key regional states such as Saudi Arabia. The article investigates three likely scenarios affecting the developments in Iraq and Iran’s possible response to them as the events in the Middle East unfold.