The state’s central function is to establish authority through its monopoly on violence; the very attempt, however, can be counterproductive. Punishment incapacitates and deters individuals, but can empower destructive collective forces. Prison gangs, their ranks swelled by mass incarceration, transform the core of the coercive apparatus into a headquarters for organizing and taxing street-level criminal activity, supplanting state authority in communities, and orchestrating mass violence and protest. Drawing on a formal model, fieldwork, and case studies from the U.S. and Latin America, I show how gangs use control over prison life, plus the state-provided threat of incarceration, to project power. The model predicts that common state responses- crackdowns and harsher sentencing-can strengthen prison gangs’ leverage over outside actors, consistent with the observed expansion of prison gangs during mass-incarceration initiatives. These gang-strengthening effects of incarceration can have increasing returns, implying a point beyond which additional punishment erodes state authority.