Muhammad ibn Mansur al-Mahdi (ruled 775–785), was the third Abbasid Caliph. He succeeded his father, al-Mansur.

Al-Mahdi, whose name means "Rightly-guided" or "Redeemer", was proclaimed caliph when his father was on his deathbed. His peaceful reign continued the policies of his predecessors.

Rapprochement with the Shi'ite Muslims in the Caliphate occurred under al-Mahdi's reign. The powerful Barmakid family, which had advised the Caliphs since the days of al-'Abbas as viziers, gained even greater powers under al-Mahdi's rule, and worked closely with the caliph to ensure the prosperity of the Abbasid state.

The cosmopolitan city of Baghdad blossomed during al-Mahdi's reign. The city attracted immigrants from all of Arabia, Iraq, Syria, Persia, and lands as far away as India and Spain. Baghdad was home to Christians, Jews, Hindus, and Zoroastrians, in addition to the growing Muslim population. It became the world's largest city outside China.

Al-Mahdi continued to expand the Abbasid administration, creating new diwans, or departments, for the army, the chancery, and taxation. Qadis or judges were appointed, and laws against non-Arabs were dropped.

The Barmakid family staffed these new departments. The Barmakids, of Persian extraction, had originally been Buddhists, but shortly before the arrival of the Arabs, they had converted to Zoroastrianism. Their short-lived Islamic legacy would count against them during the reign of Haroun al-Rashid.

The Barmakids introduced paper from India, which had not yet been used in the west – the Arabs and Persians used papyrus, and the Europeans used vellum. The paper industry boomed in Baghdad where an entire street in the city center became devoted to sales of paper and books. The cheapness and durability of paper was vital to the efficient growth of the expanding Abbasid bureaucracy.

Al-Mahdi had two important religious policies: the persecution of the zanadiqa, or dualists, and the declaration of orthodoxy. Al-Mahdi singled out the persecution of the zanadiqa in order to improve his standing among the purist Shi'i, who wanted a harder line on heresies, and found the spread of syncretic muslim-polytheist sects to be particularly virulent. Al-Mahdi declared that the caliph had the ability – and indeed, the responsibility – to define the orthodox theology of Muslims, in order to protect the umma against heresy. Although al-Mahdi did not make great use of this broad, new power, it would become important during the mihna crisis of al-Ma'mun's reign.