This study examines the impact of the Political Economy of Boko Haram and political instability in Nigeria between; 2009-2011. The study drives its theoretical foundation from the frustration- aggression model. This helped us to undertake an exhaustive analysis of the activities of the Islamic sect (Boko Haram) and the amount of danger it poses to the state as a result of frustration they met in their view of how the state is ought to be. Guided by this theoretical framework, we posited the following hypotheses: The first enquires whether activities of Boko Haram sect account for the political instability in Nigeria between 2009 and 2011. The second sought to discover if Government’s strategies to contain the activities of Boko Haram have ensured internal peace and security in Nigeria between 2009 and 2011. Data was collected for the study through the use of qualitative method by development of the logical data framework. The data collected was analyzed using qualitative descriptive technique, while the logical data clarified the empirical indicators. The study discovers that during the period of study, the insurgence of Boko Haram sect and its terrorist act has been on increase. The study equally notes that the sects’ activities have contributed to insecurity as a result of the instability in the Northern part of the country. It also notes that the government’s strategies to contain the activities of Boko Haram could not yield a positive result. This is true in the case of frequent bombings, attacks, killings among other vices despite government’s intervention in the crisis. Instead of being in control of the situation, the Boko Haram crisis has spread to other places including the Federal Capital, Abuja. The study equally discovers that poverty and leadership are also the remote causes of the crises. Also, the extra-judicial killing of the sect’s leader and other members of the sect on July, 2009 escalated the insurgence. Based on these findings, the study recommends that the Federal government of Nigeria should create more jobs for the teaming population of citizens who are often used by the political and religious elites for the satisfaction of their own selfish gains. Government should also bring the culprits to book as it will serve as deterrence to others. Also, government should rise up to the challenges of protection of lives and properties which it is entrusted to safeguard. The Federal Government must find a way to withdraw small arms in circulation and also check the influx of arms into the country. One other indisputable fact is the urgent need to overhaul our security system. Finally, the study finds out that the act of violence accompanied by more bombings, mass killings and destructions will be higher in 2012 and above.