Khosrow would return to the WWF in 1983 as The Iron Sheik and challenged Backlund once again; he defeated him on December 26, 1983 at Madison Square Garden for the WWF World championship. Sheik also injured Backlund during a Persian club challenge prior to this title match.
During his title reign, The Iron Sheik held memorable bouts against Backlund, Chief Jay Strongbow, Pat Patterson, and Tito Santana before dropping the belt just four weeks later to Hulk Hogan. The WWF's owner, now Vince McMahon, Jr., had wanted to take the WWF in a different direction as part of his plan to turn the WWF from a regional promotion into a national one. Part of his plan involved taking the title from Backlund and putting it on the charismatic Hogan, who had left the AWA to wrestle for McMahon (in the process making an enemy of the AWA's owner Verne Gagne).
He would then engage in a bitter feud with Sgt. Slaughter, to whom he would eventually lose a "Boot Camp Rules" match. The Iron Sheik would go on to team with Nikolai Volkoff as the "Foreign Legion", and under the management of "Classy" Freddie Blassie, won the WWF World tag team title from the U.S. Express at the first WrestleMania. During his stint in the WWF, he appeared in the music video for Cyndi Lauper's "Goonies 'R' Good Enough" as a part of the Rock 'n' Wrestling Connection.
In 1987, "Hacksaw" Jim Duggan (an on-screen rival) and Khosrow were pulled over by New Jersey police after a WWF event, suspecting Duggan of DUI. After a search of the vehicle and the persons, police discovered that Duggan was under the influence of marijuana and alcohol, while the Sheik was high on cocaine. Small amounts of cocaine were also found in the vehicle. Duggan received a conditional release while the Sheik was placed on probation for a year. The mini-scandal that erupted after two in-ring enemies were found drinking and doing drugs together led to the end of the angle, the Sheik's release, and Duggan's temporary departure from the WWF.
He returned to the WWF again in early 1991 and wrestled a few house shows as the Iron Sheik before making his televised re-debut on Wrestling Challenge as Colonel Mustafa,and was aligned with former enemy Sgt. Slaughter. Along with Iraqi General Adnan, Slaughter and Mustafa were portrayed as Iraqi sympathizers during the first Gulf War and feuded with Hulk Hogan. Following Slaughter's face turn after SummerSlam 1991, he teamed with General Adnan until the middle of 1992, when he left the promotion again.