Prior research finds a weak relation between cash-flow volatility and leverage. Using a novel measure of cash-flow volatility, we find that volatility matters more for firms that are financially constrained. Constrained firms issue debt when volatility is low, but have trouble deleveraging in response to increases in volatility. Constrained firms also hoard the proceeds from debt issues undertaken during low-volatility regimes, but invest the proceeds from debt issues when volatility is high. Overall, the observed relation between cash-flow volatility and capital structure choice is driven by financially constrained firms’ desire to ensure future financial flexibility.