This paper examines the processes of identity formation in Indonesia and Malaysia and the strategies undertaken by the respective states to 'manage' the influence of identity politics on the national political arena. It argues that in the pre-colonial and colonial periods, the processes of identity formation in the two countries were broadly concurrent, driven mainly by the adoption of Islam across much of the region, the intrusion of colonial markets and, in the late colonial period, the contradictory tensions aroused by colonial administration. In the post-colonial period, however, a marked difference in trajectory can be identified. In Indonesia, from independence until the fall of the New Order regime in 1998, both the Sukarno and Suharto regimes had sought to suppress horizontal forms of identity through the hegemonic promotion of a sense of Indonesian-ness and a varying degree of political authoritarianism. In contrast, the Malaysian state has sought to nullify the conflictual aspects of identity politics by affording them a central place in the political structure through a form of 'authoritarian consociationalism'.