In social dilemma situations, individuals benefit from uncooperative behavior while exploiting resources of the collective. One prominent solution to prevent uncooperative behavior and to increase cooperation is to establish a system of costly peer punishment, that is, the possibility for every individual involved in the dilemma to impose costly punishment on interaction partners. However, recent research revealed that, in contrast to a situation without punishment, peer punishment is inefficient and maladaptive in the sense that the total payoff is reduced and punishment of cooperative individuals (i.e., antisocial punishment) is possible. In the present work, we propose that a system of democratic peer punishment, that is, direct and equal participation of each individual in the punishment decision‐making process with punishment only executed when a majority has voted for its execution, can address the shortcomings of a peer punishment system. Using iterated public goods games, we show higher cooperation levels, higher total payoffs, and reduced executed punishment in the democratic compared with a peer punishment system. Moreover, we document that fairness perceptions, satisfaction, and interpersonal trust are increased in the democratic punishment system. Implications for how cooperation and democratic punishment systems may evolve are discussed.