Abstarct: It is now 32 years after the Islamic banking law was put in practice and subsequently interest is omitted from the Iranian banking system and all the contracts in Iran`s banking system is baxsed on Islamic Oghood. Therefore it is important to investigate the impacts and influences of Islamic banking and the results may be vital to policy makers, planners and decision makers in the country. Since the Islamic banking is a new experience in the world compared to the conventional interest-baxsed banking, the results and consequences are not identified. In Iran, Sudan and Pakistan Islamic banking is the only banking system available, whereas in many countries such as U.A.E., Malaysia, England, Luxemburg, etc. it is available in line with the conventional interest baxsed banking system. In this research the impact of Islamic banking on investment in Iranian industries is studied. So we considered industrial investment as the explained variable. Explanatory variables used in the model are capital formation, production value, interest rate, productivity and Islamic banking is entered to the model as a dummi variable. While the model here is a dynamic one, the estimation method used here is GMM. Due to the results of this research, Islamic banking and the lag of investment enjoy a positive impact on industrial investment in Iran, while the influence of the rest of the variables were meaningless. Therefore with the execution of the Islamic banking law, industrial investment in Iran increases.