There are a number of Islamic religious denominations, each of which has significant theological and legal differences from each other. The major branches are Sunni and Shi'a, with Sufism considered as a mystical inflection of Islam .

The Sunni (from Arab: as-Sunnah, habit or tradition) are the largest group in Islam (80%– 85% of all Muslims are Sunni). Sunnis believe that Muhammad was as a prophet, a perfect human being, and that they must imitate the words and acts of Muhammad as accurately as possible. In fact, the Quran states that the character of the Prophet Muhammad was a good example to follow. Because of this reason, the Hadith in which those words and acts are described are the main pillar of Sunni doctrine. Sunnis believe that ijtihad, or interpretation of Qur'an and Hadith is closed since 800 years. Sunnis recognize four legal traditions (madhhabs): Maliki, Shafi'i, Hanafi, and Hanbali. All four accept the validity of the others and Muslims choose any one that he/she finds agreeable to his/her ideas. There are also several orthodox theological or philosophical traditions (kalam).

Shi'a Muslims, the second-largest sect, differ from the Sunni in rejecting the authority of the first three caliphs. They honor different traditions (hadith) and have their own legal traditions. Shi'a scholars have a larger authority than Sunni scholars and have room for ijtihad or interpretation. The Imams play a central role in Shi'a doctrine. The Shi'a consist of one major school of thought known as the Ithna Ashariyya or the "Twelvers", and a few minor schools of thought, as the "Seveners" or the "Fivers" referring to the number of infallible leaders they recognize after the death of Muhammad. The term Shi'a is usually taken to be synonymous with the Ithna Ashariyya/Twelvers. Most Shi'a live in Iran, Iraq, Bahrain and Lebanon. A minority group (about 15 million) of Shi'a known as Ismaili are led by the Aga Khan and are found mainly on the Indian subcontinent.

Wahhabis, as they are known by non-Wahhabis, are a smaller, more recent Sunni group. They prefer to be called Salafis. Wahhabism is a movement founded by Muhammad ibn Abd al Wahhab in the 18th century in what is present-day Saudi Arabia. They classify themselves as Sunni and some claim to follow the Hanbali legal tradition. The major trend, however, is the abolition of these "schools of thoughts" (legal traditions), and the following of a more literalist interpretation. Some even regard other Sunni as heretics. Wahabbism is recognized as the official religion of Saudi Arabia and they have had a great deal of influence on the Islamic world because of Saudi control of Mecca and Medina, the Islamic holy places, and because of Saudi funding for mosques and schools in other countries.

Sunni and Shi'a have often clashed. Some Sunni believe that Shi'a are heretics while other Sunni recognize Shi'a as fellow Muslims. According to Shaikh Mahmood Shaltoot, head of the al-Azhar University in the middle part of the 20th century, "the Ja'fari school of thought, which is also known as "al-Shi'a al- Imamiyyah al-Ithna Ashariyyah" (i.e. The Twelver Imami Shi'ites) is a school of thought that is religiously correct to follow in worship as are other Sunni schools of thought". Al-Azhar later distanced itself from this position.

Another sect which dates back to the early days of Islam is that of the Kharijites. The only surviving branch of the Kharijites are the Ibadhi Muslims. Ibadhism, like the extinct Mu'tazila school of thought, emphasizes rationality and tolerance. Ibadi's are the least sectarian of all Muslims. Most Ibadhi Muslims live in Oman.

Another trend in modern Islam is that which is sometimes called progressive. Followers may be called Ijtihadists. They may be either Sunni or Shi'ite, and generally favor the development of personal interpretations of Qur'an and Hadith. See: Liberal Islam

One very small Muslim group, based primarily in the United States, follows the teachings of Rashad Khalifa and calls itself the "Submitters". They reject hadith and fiqh, and say that they follow the Qur'an alone. An even smaller group of Qur’an- alone Muslims has split from the Submitters, claiming to represent the authentic teachings of Rashad Khalifa. Most Muslims of both the Sunni and the Shia sects consider this group to be heretical.

Sufism is a spiritual practice followed by both Sunni and Shi'a. Sufis generally feel that following Islamic law or jurisprudence (or fiqh) is only the first step on the path to perfect submission; they focus on the internal or more spiritual aspects of Islam, such as perfecting one's faith and fighting one's own ego (nafs). Most Sufi orders, or tariqa, can be classified as either Sunni or Shi'a. There are also some very large groups or sects of Sufism that are not easily categorized as either Sunni or Shi'a, such as the Bektashi. Sufis are found throughout the Islamic world, from Senegal to Indonesia.