This article analyzes important issues of banking law in particular topical matters of the role of I. R. of Iran for development of Islamic banking. It reveals historical aspects of this issue. The proposal to establish a national Iranian bank was first made by a big money dealer to Qajar king, Naser-o-Din Shah, before the Constitutional Revolution but the Qajar king did not pay much attention to the proposal. However, with the establishment of constitutional rule in the country, the idea of setting up a national Iranian bank, in order to reduce political and economic influence of foreigners, was brought to life in December 1906 and the bank foundation was subject to the completion of its Articles of Association During the past few years, Islamic banking practices have been at the center of many public policy debates, and numerous surveys of extensive literature on Islamic banking have been published over the years. Islamic Banking as an alternate to interest-based banking is not banking in the traditional sense known as conventional banking. It derives its inspiration and guidance from the religious edicts of Islam and has to conduct its operations in accordance with the directives of Sharia’h. The Islamic financial system employed the concept of participation in the business activities of enterprises, utilizing the funds of depositors upon risk on a profit-and-loss-sharing basis. To avoid interest-based operations, Islamic Banks have developed profit-sharing schemes in tapping and mobilization their resources. In this connection the article reveals the Concept and Challenges in Islamic Banking and considers experience of Islamic Banking in Iran. Islamic Banking industry has shown tremendous potential for growth in the last decades all over the word.