The US-led invasion of the Caribbean island of Grenada at the alleged behest of the Organisation of Eastern Caribbean States (OECS) on 25 October 1983 had a profound negative impact upon the development of the Special Relationship under Reagan and Thatcher. The dubious legality of the intervention was widely criticised by the international community, most notably the UK. And yet, it was the Thatcher government that bore the scars of considerable domestic criticism regarding the unlawful US involvement in the internal affairs of a member of the British Commonwealth. The US invasion of Grenada, or operation ‘Urgent Fury’ as it is otherwise known, raised important questions regarding the limits of British credibility and importance within the Anglo-American alliance.

Britain was outraged at such a blatant American disregard for its legal authority and history in Grenada, and the relationship suffered a serious crisis of confidence. The lack of US consultation with the UK, and America's obvious intention to mislead Thatcher and her Cabinet of its true intentions towards Grenada resulted in a mistrust of American policies and scorn towards the ensuing platitudes. Thatcher was placed in the unenviable position of having to save face in the light of both party and public criticism of the US while simultaneously striving to maintain close transatlantic ties. Despite her marked displeasure over Reagan's deception, the Prime Minister wanted to continue to pursue close Anglo-American relations. This was difficult as the US appeared to have favoured unilateralism over transatlantic cooperation and consultation. Britain's credibility as a close ally of the Reagan administration and as an important actor in the Caribbean was questionable to say the least. Anti-Americanism flared throughout the UK as American strategic interests were criticised by many, including the general public. Questions were raised regarding the ability to trust the Reagan administration, in particular, with regard to the forthcoming placement of US Cruise missiles in British bases. Thus, the US invasion of Grenada possessed potentially far-reaching negative consequences for the Special Relationship and its future development.