Previous research shows that news about Islamist terrorism can seriously affect citizens’ fear reactions and influence non-Muslims’ out-group perceptions of Muslims. We argue that news coverage that explicitly links Islam to terrorism or terrorists of the Islamic State (IS) may trigger fears in non-Muslim individuals. In contrast, news differentiation (i.e., explicitly distinguishing between Muslims and Muslim terrorists) may dampen particular fear reactions in citizens. To test the specific effects of news differentiation, a controlled laboratory experiment was conducted. Results showed that undifferentiated news about IS terrorism increased participants’ fear of terrorism and resulted in hostile perceptions toward Muslims in general. However, fear of terrorism only enhanced hostile attitudes toward Muslims for individuals with negative and moderately positive prior experiences with Muslims. For those with very positive experiences, no such relationship was found. Implications of these findings for journalism practice and intergroup relations in multicultural societies are discussed.