As the number and types of Islamic schools in a Western context have increased, so too have the questions on their purpose and impact in pluralistic Western societies. Amid this increasingly complex environment, questions are raised, both internally and externally, to determine the nature of Islamic educational goals, schools’ knowledge and pedagogical practices. Analysis in this paper draws on multiple sources of data: classical and contemporary literature on education in Islam; the Department for Education (DfE) school census and the Office for Standards in Education; Children’s Services and Skills (Ofsted); and empirical case-study data extracted from the author’s PhD thesis on diversity in Islamic schools in Britain conducted during 2008–2012 and subsequently revised during 2018–2019 by following up emergent themes. This paper argues for a need to develop an “Islamic wisdom-based culture” promoting action (‘amal) which nurtures the holistic growth of learners in ethical areas (akhlāq), aesthetics (dhawq/jamāl) and develops a sense of freedom (huriyyah). By doing so, the paper draws primarily on Bennabi’s analysis of the role of culture (thaqāfah) in the civilisation cycle, Ibn-Khaldūn’s analysis of freedom and dignity in educational practice embedded in his discussion of the meanings of humanity) Al-insāniyyah) and Gadamer’s analysis of “practical wisdom”. Firstly, it contextualises Islamic schooling in Britain into a neoliberal pluralistic context. The wisdom inherent in Islamic education is explored through critical dialogue during the process of learning and action. The discussion then considers three key elements of “wisdom-based cultural environment” for Islamic education.