Abstract This article examines how liberal states regulate religion through a comparative study of government-run Islamic universities in Egypt and Indonesia. Building on recent historical scholarship, it is argued that, contrary to conventional views, liberal states have frequently endorsed government intervention in religious life – including “authoritarian” repression of disfavored religious beliefs and practices. Liberal interventionist policies were first developed in Europe during the eighteenth and nineteenth centuries, where they were applied most intensely to Catholics. The policies were then brought to the Muslim world during the colonial era, and have been maintained by liberal post-colonial Muslim states like Egypt and Indonesia. It is argued that such Muslim states utilize heavy government intervention to promote liberal ideals of “civilizational progress” (i.e., development) and “religiously inclusive nationalism”. Intervention is carried out, in large part, through state-run systems of religious education, which include Islamic universities. Such universities canonize reformed “progressive” “nationalist” versions of Islam, while simultaneously decanonizing “fanatic” versions of Islam which oppose civilizational progress and religiously inclusive nationalism. It is shown that the canonization process involves ascribing unique importance to particular languages, places, persons, and texts associated with the Islamic tradition.