The purpose of this paper is to examine the evolving relationship between Iran and the Kurdish Regional Government (KRG). The main thesis of the paper is that despite some initial reservations about the emergence of an autonomous government in Iraqi Kurdistan, Iran has now accepted the permanency of the KRG. Consequently, Iran and the KRG have focused on commonalities of interests and have developed a framework for expansion of their socioeconomic relations. The evolving relationship between the KRG and Iran has already resulted in a thriving trade relationship between the two sides. Although trade remains the most significant economic medium linking the border regions of Iran and Iraqi Kurdistan, Iranian investment is also increasing. Regular contacts involving official and private economic delegations between the two sides are now routine. Politically, the two sides have established legations in their respective territories. Both sides are keenly aware of a number of political issues that are inherently destabilizing and can strain relations between the KRG and Iran. In particular, the presence of Iranian Kurdish opposition forces in the areas controlled by the KRG have led to raids by the Iranian security forces inside Iraqi Kurdistan. Also, Iran is weary of threats to its national security that may come from the activities of American and/or Israeli intelligence in the border areas. These variables will be analyzed in my paper, using primary and secondary Iranian, Kurdish and Western sources.