diff --git a/campaign/src/release_milestone.rs b/campaign/src/release_milestone.rs
new file mode 100644
index 0000000..aac1baf
--- /dev/null
+++ b/campaign/src/release_milestone.rs
@@ -0,0 +1,50 @@
+use soroban_sdk::{Address, Env, token};
+use crate::types::{Error, MilestoneStatus};
+use crate::storage::{get_campaign, get_milestone, set_milestone};
+
+/// Issue #207 – `release_milestone` function
+///
+/// Releases funds for an unlocked milestone to the recipient.
+/// Requires creator authorization.
+/// Validates milestone status is `Unlocked`.
+/// Transfers tokens from contract to recipient.
+/// Sets milestone status to `Released`.
+/// Emits `milestone_released` event.
+pub fn release_milestone(env: &Env, milestone_index: u32, recipient: Address) {
+    let campaign = get_campaign(env).unwrap_or_else(|| {
+        soroban_sdk::panic_with_error!(env, Error::NotInitialized)
+    });
+
+    campaign.creator.require_auth();
+
+    let mut milestone = get_milestone(env, milestone_index).unwrap_or_else(|| {
+        soroban_sdk::panic_with_error!(env, Error::MilestoneNotFound)
+    });
+
+    if milestone.status != MilestoneStatus::Unlocked {
+        soroban_sdk::panic_with_error!(env, Error::InvalidMilestoneTransition);
+    }
+
+    let release_amount = milestone.target_amount - milestone.released_amount;
+
+    // Transfer each accepted asset proportionally
+    for asset in campaign.accepted_assets.iter() {
+        if let Some(issuer) = asset.issuer.clone() {
+            let token_client = token::Client::new(env, &issuer);
+            let asset_balance = token_client.balance(&env.current_contract_address());
+            if asset_balance > 0 && release_amount > 0 {
+                let transfer_amount = release_amount.min(asset_balance);
+                token_client.transfer(&env.current_contract_address(), &recipient, &transfer_amount);
+            }
+        }
+    }
+
+    milestone.released_amount = milestone.target_amount;
+    milestone.status = MilestoneStatus::Released;
+    set_milestone(env, milestone_index, &milestone);
+
+    env.events().publish(
+        ("milestone", "released"),
+        (milestone_index, release_amount, recipient),
+    );
+}