This paper examines the British approach to institutional Islam in Palestine during the first decade of the Mandate. By looking at the establishment of Islamic institutions, such as the Supreme Muslim Council (SMC), the paper considers both the process used by the Christian power to transfer oversight of Islamic affairs to the local Muslim community and the logic that guided that transfer. Based upon British and Israeli archival materials, memoirs from colonial officials and leading Arab observers, British and Zionist intelligence reports, newspaper reports, and select records from the SMC, this article uses the SMC as a lens for understanding how British policy attempted to order and control Palestinian Islam. My work challenges conventional historical accounts that present the British decision to create Muslim-run institutions as either an abdication of Britain’s duty as a colonial power or as an act of appeasement towards the Muslim Arab population. I argue that the SMC was neither a product of colonial neglect or weakness, but was instead created through a conscious policy of dividing the Palestinian population along religious rather than ethnic or nationalist lines. This policy led to a reconfiguration of Ottoman ideas of communal representation that extended the millet concept to include the Muslim community and established the need for an autonomous Muslim institution run entirely by the local community, an unprecedented need that was soon fulfilled by the establishment of the SMC. The paper also discusses the novelty of the Islamic institutions created by the British in Palestine and considers whether the SMC represented a Palestinian Islam or even a Palestinian nationalist Islam. Also discussed are the ways in which the communitarian paradigm adopted in Palestine worked with or against alternative subaltern understandings of identity and organization.