The Western Balkans is a region comprising six Southeastern European countries that are still not European Union Member States but are currently pursuing reforms aimed at strengthening the rule of law—considered as a key prerequisite for EU accession, economic development and the building of a prosperous society. However, it has been noted that Western Balkan countries are facing difficulties and making slow progress towards this policy goal. Investment treaties are considered as mechanisms which may potentially have a positive influence on the promotion of the rule of law and good governance. Such treaties introduce high standards of treatment of foreign investors and governance as international law obligations of host states, which if not satisfied could provoke a foreign investor to seek legal protection through investment arbitration. To avoid liability arising out of investment arbitration, it is argued that host States encourage long-term reforms of administrative and judicial processes. In this chapter, this theory is examined in the context of Western Balkan countries. I conclude that investment arbitration has until recently had little to no impact on the rule of law in the relevant countries, due to various factors elaborated in the chapter. In the last few years, as the number of investment claims has been rising, so is the awareness of governments in the region of the threat of investment arbitration and the need to respond to such threats. I describe how policy makers are for this reason increasingly influenced by investment arbitration and are making efforts to strengthen domestic capacities and capabilities to prevent and effectively handle investment disputes. Whether such efforts will lead to long-term and structural reforms remains to be seen.