The country of Indonesia is not only the world largest Muslim country but also has a diverse culture and history. This paper will try to answer the question of how the historical context and political environment have contributed to shaping the relationship between Islam and (secular) democracy in Indonesia today. By examining remnants of the country’s colonial past, independence from the Dutch in the late 40’s, through the authoritarian regime of Sukarno and The “New Order Administration” and how these periods of the country’s existence have helped shape the socio-religious environment of contemporary Indonesia. By looking at how the socio-religious context interacted with political context of the country during its modernizing transformation after the colonial period, I suggest that the Islam found in Indonesia, exists in a variety of ways but cannot be looked at without taking the historical context into consideration. As a consequence of large diversity among Indonesians both ethnically and religiously, Islam was never a united political force as in other countries. But how does the contemporary political environment affect religious identity construction for contemporary Indonesians? With the socio-religious climate in Indonesia one of dynamism, active participation and as it contains the largest Muslim populous in the world as well as one of the largest growing economies, Indonesia and the relationship between Islam and democracy is of increasing global importance.