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Islam is not only a religion but a complete system of human life. Thefoundation of the Muslim state is derived from Qur’an and Hadith of theHoly Prophet (PBUH), the Consensus and Ijtihad. Muhammad Iqbal'sIslamic theory is internationally significant and according to the need of theera. The same Qur'anic theory which he has expressed in his Islamic theoryin his writings, he also expressed it in the form of poetry in Urdu andPersian language. The Islamic state is the embodiment of human greatness,free from dictatorship and monarchy, capitalism, and blessed in Allah’sland. Hadit and practice of the beloved Prophet express the meaning of theQur'an, and this is required by Islamic law. The Constitution of Medina hasactually drafted the Islamic constitution of the Prophet. The Islamic Statewhile drafting the law takes it as a model. Important sources of Islamic laware called consensus, for example practical examples of companions,followers, and scholars. Then there is the analogy of what is called ijtihadand it must be done at all times by the Muslims with diligence andauthority.Key words: Quran, Hadith, Islamic Theory, capitalism, Madina.