Research arguing that external threats determine regime type has generally failed to provide systematic evidence in favor of the peace-to-democracy hypothesis. We suspect that the lack of confirmatory findings is likely driven by conflating the concepts of negative (absence of conflict) and positive (mutual trust and cooperation) peace. By focusing on territorial issues and the phenomenon of peaceful state-to-state territorial transfers (i.e., peaceful alteration of borders), we are able to observe the effects of replacing territorial threat stemming from negative territorial peace (or territorial rivalry) with the positive territorial peace associated with legitimate, mutually accepted borders. Our findings support the expectations that peaceful territorial transfers remove active and latent territorial threat and lead to demilitarization and democratization. Importantly, peaceful territorial transfers are not endogenous to regime type. Our study therefore supports an alternative explanation for the democratic peace: both democracy and peace may be a function of settling territorial threats.