This paper examines how industrial entry regulation and labor laws a®ect informality, using district-level panel data on informal manufacturing enterprises in India. A major policy reform in 1991 removed license controls on the setup and expansion of factories in several industries. Variation in the pre-reform size of deregulated industries across districts within states, and in labor laws across states allow for a di®erences in di®erences approach to measuring how the impact of this reform on informality depended on labor regulation. The paper ¯nds that following this reform, the informal sector contracted to a greater extent in states with more °exible labor laws. The associated increase in value added per worker in manufacturing too was larger in these states. These ¯ndings suggest that entry deregulation can lead to productivity-enhancing labor reallocation from the informal to the formal sector, if labor laws are °exible.