Mexico's drug ‘war’ produced 100,000 deaths between 2006 and 2012. The extreme violence has raised the notion that Mexico has become a failed state wracked by terrorism. We categorise the forms of narco‐violence in Mexico in light of the literature on terrorism and contemporary Mexican politics. Our study suggests three overlapping dimensions of narco‐violence that should be considered terrorism: (a) narco‐terror as a struggle for regional political control; (b) narco‐terror as a practice ordered by cartel leaders rather than spontaneous violence of foot soldiers; and (c) narco‐terror as an expansion strategy from solely drug trafficking to other kinds of organised crime.