This research will focus on the relationship between the development of Islamic stock market and macroeconomic variables in Malaysia. Generally, the purpose of this research is to observe this relationship in Malaysian context. In order to achieve the objective, an estimation of Vector Auto Regression (VAR) method was appli ed on the created research model. The variables involved in this research are Kuala Lumpur Syariah Index (KLSI), Industrial Production Index (IPI), Consumer Production Index (CPI), Aggregate Money Supply (M3), Islamic Inter Bank Rate (IIR) and Exchange Rat e of Malaysian Ringgit - United States Dollar. This research used monthly data from April 1999 to October 2007 taken from authorized sources. The findings showed that Islamic stock prices are co - integrated with the selected macroeconomic variables in which the stock price is related positively and significantly with IPI and CPI variables but related negatively and significantly with M3 and MYR variables. Meanwhile, its relation with IIR variables is found negative but insignificant. From the aspect of Gran ger causal relationship it is found that variables of CPI, M3 and MYR are the Granger cause for KLSI and the KLSI is the Granger cause for IPI, CPI and MYR
