This study analyzes the contested relationship between Sufism and the Shariah and Shāh Walī Allāh’s problematic of waḥdat al-wujūd. Some Sufis describe Sufism or taṣawwuf as the inner reality of the Shariah while others see it as the inward dimension of Islam. Drawing on a variety of classical sources, Walī Allāh stresses that accepting waḥdat al-wujūd does not mean one is being less faithful to the tenets of the Shariah, as it safeguards God’s transcendence vis-à-vis the world. Walī Allāh belabors to clarify various misconceptions that bedevil it. His views on waḥdat al-wujūd are largely in alignment with that of the school of Ibn ʿArabī, although he seems to add new dimensions to it at times. He also asserts that a Sufi sage’s (ḥakīm) understanding of the term differs from that of the uninitiate. In addition, he affirms that waḥdat al-wujūd does not negate the multiplicity of the cosmos, even though wujūd is one.