The practice of political party banning and dissolution seems at odds with democratic ideals. Since 2006, however, Thailand has witnessed the dissolution of seven parties and the banning of hundreds of politicians. This article seeks to address the causes of party banning in Thailand and its effects on party institutionalization between 2006 to 2008. Its findings show that party banning not only affected the banned parties, but also the rest of the parties in the political system. Party banning and dissolution — a factor largely overlooked in the existing literature — unevenly impacts different dimensions of party institutionalization. As such, the Thai case shows that party banning greatly weakens the “autonomy” of party institutionalization, while it has differential effects on the party system’s “legitimacy”. While the bans reveal that many political actors view the electoral process as illegitimate, the findings show little effect on voter’s attitudes towards the legitimacy of the party system. Moreover, this article breaks new ground in the study of party institutionalization in new democracies by relying on context-based, qualitative measures of party institutionalization, not electoral volatility which is used in most studies.