This paper examines the strategic role of high levels of debt and bankruptcy threats in deterring entry into monopolistic markets. In the context of an infinite horizon entry game, the authors show that if a potential entrant has access to debt financing with limited liability, the unique sub-game perfect equilibrium involves the entrant successfully issuing a high level of debt, entering the market and being met with co-operation. If, in addition to the entrant, the incumbent also has access to debt with limited liability it will be highly levered and will completely pre-empt any entry in equilibrium. Finally if the incumbent faces a variety of potential entrants with differing abilities to capture market shares, its optimal capital structure will help pre-empt the entry of the tougher entrants, while allowing the weaker ones to share the market. The results of extreme leverage are also shown to hold in an alternative formulation analysed by Kreps and Wilson (1982) and Milgrom and Roberts (1982) and thus are robust to model specifications. The empirical implications and possible application into high leverage industries are briefly discussed.