Serbia is the only state in the Western Balkans that is not seeking NATO membership. In December 2007, Serbia declared military neutrality and in spite of its EU membership aspirations, developed very close relations with Moscow. The objective of this paper is threefold. First, I argue that in order to understand why Serbia declared military neutrality, one has to look both at the discursive terrain and domestic power struggles. The key narrative that was strategically used by mnemonic entrepreneurs, most importantly by the former Prime Minister Vojislav Koštunica, to legitimize military neutrality was the trauma of NATO intervention in 1999 and the ensuing secession of Kosovo. In the second part of the paper, I discuss the operational consequences of the military neutrality policy for Serbia's relations with NATO and Russia, as well as for military reform and EU accession. Finally, I spell out the challenges ahead in Serbia's neutrality policy and argue that its decision makers will increasingly be caught between pragmatic foreign policy requirements on the one hand and deeply entrenched traumatic memories on the other.