The primary goal of this study is to theoretically illuminate the mentality of refugees and terrorists as shown in Shyam Selvadurai’s novel Funny Boy. It will be evaluated considering the refugee theory, the acculturation theory, and the reasons of terrorism. The focus of the research will be on the psychological effects of trauma and memory loss among refugees and terrorists. Refugee Theory and the Theory of Acculturation will be used to discuss the mindset of refugees before and after migration, while the psychological causes of terrorism will be discussed in relation to the traumatic events experienced by terrorists before enlisting. Finally, the role of the ethnic struggle and the extent to which it has victimised people will be studied, and it will be claimed that the refugees and terrorists may be viewed as victims of the trauma generated by the ethnic conflict. The research is meant to contribute to the fields of terrorism, refugee studies, and post-traumatic stress disorder research. The secondary goal of this book chapter is—the term “funny” is analysed within the context of Funny Boy (1994), including its use in the first chapters that depict the family’s everyday existence, as well as its portrayal as a source of humour in public and literary discourses dominated by language. This paper delves into the novel’s utilisation of the words “funny” and “tendencies” to explore their multiple meanings. It also examines the novel’s intertextual references and allusions to British canonical literature. By doing so, the paper analyses how the novel’s “critical funniness” navigates complex forces like imperialism and nationalism, which appear to provide stability but also exhibit violent and castrating characteristics.