This article examines the relationships between exposure to terrorism news and state social paranoia, death anxiety and Islamophobia. In two experiments we show that, contrary to previous research in this area, the terrorism news condition did not significantly increase state social paranoia, death anxiety and prejudice towards Muslims, but that paranoid thinking was the sole predictor of Islamophobia. Trait paranoia is associated with both poor well-being and with negative perceptions of Muslim competitive players – a form of inter-relational prejudice. Results indicated that the frequency of paranoid thoughts mediates the relationship between death anxiety and anti-Muslim prejudice and trait paranoia is the main predictor of the negative perceptions of a Muslim competing player. This study elucidates new pathways to understanding terror management theory, by including paranoia as a type of thinking that predisposes individuals to be suspicious of salient out-groups.