The Islamic Republic of Iran punishes homosexuality with death but it actively recognizes transsexuality, and partially funds sex change operations. This article aims to examine how this seemingly progressive stance on transsexuality is connected to the IRI's larger oppressive apparatus of gender. It will first provide an overview of the cultural politics of gender and sexuality under the Islamic Republic's rule, and will then discuss the confluence of religious and medical literatures that led the Islamic Republic to adopt its new discourse on transsexuality despite or perhaps rather because of its sex/gender politics. The article does not deny that this emerging discourse has been somewhat empowering for those transsexuals who genuinely desire surgical transformation. But empowering as it might have been for such transsexuals, the emerging discourse is still deeply troubling since it systematically regards homosexuality and more generally any sexual or gender non-conformity as unintelligible, perverse, and punishable by law, except for those willing to transform their "wrong bodies." The article will, therefore, demonstrate that the IRI's permission of transsexuality and sex change operations is motivated by a goal that is more about assimilating gender atypical individuals into the heteronormative order than about broadening horizons for sex/gender possibilities. The article ends by discussing how this discourse is making non-surgical trans/multi-gendered identity illegible and illegitimate not only as a publicly recognized possibility, but also with regard to transpersons' own self-perception and self-constitution of their gender and sexual subjectivity.