This study examines women's employment in Iran between 1979-1997, analysing the changing position of the Islamic state in reaction to economic circumstances and women's responses. In making this assessment the interaction between economic circumstances, the institutionalisation of gender inequality and also the responses of women are examined. This study demonstrates that economic forces and women's struggle for change undermined the Islamic state's gender relations. The Islamisation of state and society which followed the 1979 revolution involved an attempt by the Islamic state to seclude women within the home in accordance with the state's gender and employment policy and practices. The power of the state to transform gender relations, however, was constrained by the Iran - Iraq war, as the survival of many families depended on women's earnings. The end of the war with Iraq and the return of men to the workforce did not result in women's return to the home. Economic reconstruction and inflation increased women's participation in the workforce. This study demonstrates that in 1997, women's participation in the labour force, despite a rigid sexual division of labour imposed ideologically by the Islamic state is no less than it was in pre-1979. However, the state continued to strengthen patriarchal relationships within the home, employment and wider society, thus maintaining that women's participation in the workforce is by nature temporary and that ultimately a woman's place is in the home. Women of different classes and with different levels of religiosity responded to the economic circumstances and the state's gender ideology. Their participation in the political movements and their active role in the economy has raised gender consciousness. The result is an alliance between religious and secular women in urban areas who have demanded reforms and forced the Islamic state to return to the position of the reforms of pre-1979 in relation to women and the family, and women's education and employment.