Combining the literature on sovereignty and Europeanisation, this article investigates the engagement and impact of the European Union (EU) on contested states (states lacking recognition) through a comparative study of the Turkish Republic of Northern Cyprus (TRNC) and Palestine. We find that characteristics of contested statehood mediate EU engagement and impact: the lack of international recognition limits EU's engagement but encourages development promotion, international integration and assistance of local civil society. Lack of territorial control limits engagement, but ineffective government offers opportunities for development promotion and state-building. As such, and in addition to offering a rich empirical account of two prominent contested states, the article contributes to the discussion of international engagement by developing an innovative conceptual framework for understanding EU's impact on contested states-a topic neglected within a literature dominated by conventional statehood or conflict resolution themes but very important given extensive international engagement in contested states-and related conflicts.