A book chapter in The Taiwan Issue: Challenges and Prospects, edited by Andrew Tan, this chapter examines the development of Taiwan’s armed forces, the problems and challenges it faces, and its future prospects. Taiwan’s armed forces with an offensive structure during the Cold War have been transformed for island defence in the 1990s. However, their ability of defence in the face of China’s rising military power has been doubtful, despite considerable investment. The root would be the dramatic strategic changes corresponding to the diverse national identities. As independence and unification are diverse approaches, the respective strategic guidance are unavoidably contradictive. Apart from politics, the poor internal management and some popularist policies, such as all-voluntary forces, also contribute to the unreliable image of Taiwan’s armed forces. Based the current political situation, an overall reform of armed forces for greater deterrence would be unlikely.