This review article proposes that theories and research of intergroup contact, prejudice, and acculturation enhance understanding of the current intercultural relations between Muslims and non- Muslims in Western societies such as in Australia. The actual and perceived prejudice that many Muslims who study, work, and live in the West have experienced following the September 11, 2001, terrorist attacks adds an additional layer of stress to the psychosocial adjustment of Muslim immigrants and sojourners, affecting their cross-cultural adaptation and mental health. Stephan and colleagues’ integrated threat theory argued that the perceived threat experienced by all parties explains the acts of prejudice. Berry’s acculturation framework highlighted that adaptive acculturation is determined by congruent host nation policies and practices and immigrant acculturation strategies. Implications for multicultural policy, intercultural training, and mental health practice as well as suggestions for future research are discussed.