The trade-off between mercy and justice is a classic moral dilemma, particularly for organizational leaders and managers. In 3 complementary studies, we investigated how resolving the “punishment dilemma” influences interpersonal trust. Study 1 used controlled scenarios to show that uninvolved observers trusted leaders who administered large or medium punishment more than leaders who administered no punishment when transgressors deserved punishment. At the same time, large punishment decreased trust more than medium or no punishment for less deserving targets. Study 2’s similar scenarios showed that leaders who administered punishment lost trust when they subsequently received benefits even though it was not clear whether their benefits resulted from their act of punishment. Study 3 provided a behavioral replication of these results. These findings suggest that people trusted punishers more than nonpunishers, but only when punishers’ motives were not personal revenge. In the discussion, we explore the practical and theoretical implications of these results for organizations.