In this paper, we have tried to trace the evolution and performance of Islamic banking in Iran by reviewing the past literature. For this purpose, different phases of the Islamization of the banking industry in Iran after the ratification of the Riba-Free Banking Act in 1983 were studied. Furthermore, the steps that were taken in the last four decades to fully implement this act and its regulations throughout the whole banking system were assessed. Spreading the rules and principles of Shari’ah across the entire industry and unifying the whole banking community based on the riba-free practice started with the commercial banks and was later adopted by the Central Bank of Iran. Therefore, this report sheds light on the practice of monetary policy in the context of riba-free banking. It follows the growth of the Islamic banking system in the context of Iran’s economic development and attempts to highlight the role of monetary policy in Iran’s economic development process. More specifically, the work critically reviewed regulatory products offered by Islamic banks in Iran, government support, and performance of Islamic banking institutions as well as monetary policy performance in Iran.