We use insights into the social dynamics of state paranoia to better understand and explain the evolution and effects of perceived abusive supervision. Within our framework, abusive supervision and employee state paranoia are reciprocally related. We explain how perceived abusive supervision can influence paranoid arousal (characterized by extreme distrust, a sense of threat, anxiety and fear of one's supervisor) and paranoid cognition (characterized by hypervigilance, rumination, and sinister attribution tendencies), and has attendant implications for employee behavior. We also identify an intra-personal mechanism of cognitive bias (e.g., sinister attribution tendencies, interpretive bias), and an inter-personal process of victim precipitation, whereby employee state paranoia can influence both experienced and subjective evaluations of abusive supervision. In addition, we identify personal, relational and contextual factors that moderate the relationship of abusive supervision and employee state paranoia. Our analysis brings into focus the psychological and emergent nature of abusive supervision, as well as the mechanisms by which abusive supervision influences employee psychological well-being and behavior.