While it is commonly assumed that the United States uses foreign aid as an instrument to combat global terrorism, it is unclear whether it views terrorist threats to other countries, particularly its allies, with urgency. We show that the relationship between transnational terrorism and foreign aid flows is strongly conditional on whether terrorist activity based in a potential recipient directly threatens the United States. Using data on terrorist attacks and casualties in potential recipient countries, we demonstrate that terrorist activity based within a state’s borders, which targets US interests is a strong determinant of both whether that state receives any aid and also how much aid it receives. In contrast, the presence of terrorism targeted at non-US interests, even if it targets formal allies of the United States, is generally unrelated to US aid allocation. These findings suggest that the United States' use of foreign aid to fight terrorism and political violence is narrowly tailored to assist countries that directly threaten its own security, rather than those of other countries, even its allies.