Public Law 280 transferred jurisdiction over criminal and civil matters from the federal to state governments and increased the extent of nontribal law enforcement in selected parts of Indian country. Where enacted, the law fundamentally altered the preexisting legal order. Public Law 280 thus provides a unique opportunity to study the impact of legal institutions and their change on socioeconomic outcomes. The law's controversial content has attracted interest from legal scholars. However, empirical studies of its impact are scarce and do not address the law's endogenous nature. We examine the law's impact on crime and on economic development in U.S. counties with significant American‐Indian reservation population. To address the issue of selection of areas subject to Public Law 280, our empirical strategy draws on the law's politico‐historical context. We find that the application of Public Law 280 increased crime and lowered incomes. The law's adverse impact is robust and noteworthy in magnitude.