This paper is divided into three parts. The first part will provide a general overview of some major approaches in the discussion on the relationship between Islam and liberalism. Following this the next section will breafly elaborate Talal Asad s notion of Islam as a discursive traditional and Jhon Rawls distinction between liberalism and poliyical liberalism and how they might contribute to the discussion on the relationship between Islam and liberalism. In the final part the paper will then present a general observation on the evolving encounter between Islam and liberalism in Indonesia and the accompanying debate over this encounter among major Islamic groups in the country. In doing so it will be argued that while liberalism as a comprehensive doctrine has been and will remain contested among Indonesan Muslims there has been a growing support among them for political liberalism althoung not in a purely Ralwsian sense.