The importance of national identity and national feelings in contemporary Iranian politics has been much neglected by the students of Iranian studies, particularly outside Iran. The establishment of the Islamic Republic of Iran and the dominance of Islamically-oriented policies in its foreign policy seem to have encouraged many to believe that Islam and Iran in the contemporary context are two mutually exclusive factors. However, recent internal developments such as the presidential election, on the one hand, and the firm position of Iranians inside and outside the country toward regional political and international cultural challenges vis-à-vis their national heritage on the other indicate that Iranians consider both the religious and national dimensions of their identity as important, and they consider the relation between religion and nationality as mutually inclusive, as opposed to an exclusive one. This article, focusing on the issue of Islam and nationalism and their relationships, tries to highlight this important factor in order to arrive at a better understanding of the political dynamics of Iranian society and politics. It argues that contrary to the situation in the Arab world, these two elements are both constitutive factors of the Iranian identity. Following a rather brief theoretical discussion of the relations between the two in Islamic and Middle Eastern perspectives, the author will try to explain the political reasons behind the rise of the Islam-nationalism controversy in contemporary Iranian politics and emphasizes that such a dichotomous discourse has an elite rather than popular basis. The concluding section of the article concentrates on the importance of the national factor in the Iranian society by focusing on the two recent presidential elections in Iran as well as on several external political and cultural challenges to Iranian national heritage toward which Iranians took a coherent stance inside and outside of Iran.