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The authors test whether acquisitions and divestitures are related to environmental uncertainty and diversification strategy. Drawing from transaction cost economics, they predicted that increases in environmental uncertainty would reduce a company's ability to manage its subsidiaries efficiently and would lead to divestiture. Conversely, they predicted that decreases in environmental uncertainty would enable a company to manage its subsidiaries more efficiently and would lead to acquisition. Those predictions were expected to be strongest for firms with intermediate levels of diversification, as such firms are believed to be the most difficult to manage efficiently. Repeated measures analyses of a panel of 164 Fortune 500 companies supported the predictions for highly diversified firms (e.g., unrelated businesses) only. Less diversified firms reacted to increases in uncertainty by acquiring and to decreases in uncertainty by divesting. The results suggest that the relationship between diversification strategy and portfolio restructuring depends on environmental uncertainty. In addition, the study findings imply that there may be limits in the hierarchy's governance efficiency in relation to market modes and that those limits may be affected by environmental uncertainty and diversification strategy.