This paper examines how uncertainty affects investment decisions, showing that higher uncertainty reduces the impact of demand shocks on investment. The study uses both a numerical model with adjustment costs, time-varying uncertainty, and aggregation over investment decisions and time, and empirical data from a panel of UK manufacturing firms. It finds that uncertainty makes firms more cautious, reducing the responsiveness of investment to demand shocks. For example, moving from the lower quartile to the upper quartile of the uncertainty distribution typically halves the first year investment response to demand shocks. This implies that firms may respond less to policy stimuli during periods of high uncertainty, such as after major shocks like OPEC I and 9/11. The paper also shows that investment responses to demand shocks are convex, meaning larger shocks lead to more investment in different types of capital and production units. These findings are supported by both theoretical and empirical analyses, and the results suggest that uncertainty plays a significant role in shaping firm-level investment decisions. The study highlights the importance of considering uncertainty in policy-making, especially during periods of high uncertainty.This paper examines how uncertainty affects investment decisions, showing that higher uncertainty reduces the impact of demand shocks on investment. The study uses both a numerical model with adjustment costs, time-varying uncertainty, and aggregation over investment decisions and time, and empirical data from a panel of UK manufacturing firms. It finds that uncertainty makes firms more cautious, reducing the responsiveness of investment to demand shocks. For example, moving from the lower quartile to the upper quartile of the uncertainty distribution typically halves the first year investment response to demand shocks. This implies that firms may respond less to policy stimuli during periods of high uncertainty, such as after major shocks like OPEC I and 9/11. The paper also shows that investment responses to demand shocks are convex, meaning larger shocks lead to more investment in different types of capital and production units. These findings are supported by both theoretical and empirical analyses, and the results suggest that uncertainty plays a significant role in shaping firm-level investment decisions. The study highlights the importance of considering uncertainty in policy-making, especially during periods of high uncertainty.