Around the world, democracy seems to be under threat and polarization is considered one of the main culprits. In this study, we return the focus to ideological party polarization and conceptualize it as a multi-dimensional construct that encompasses different policy dimensions. Theoretically, we argue that the effect of polarization on democracy is neither linear nor unconditional. Both high and low levels of polarization have deleterious consequences for democracy, particularly at low levels of party fragmentation. When voters cannot meaningfully distinguish between two alternatives, democracies experience as much risk as when political opponents resent each other. Finally, we introduce novel data on election outcomes and party positions in 25 European interwar democracies, a period in which many democracies actually failed. Our observational analysis supports the predicted inverted U-curve relationship between ideological polarization and democracy across multiple measurement approaches and model specifications.