Measurements of optical constants at terahertz—or T-ray—frequencies have been performed extensively using terahertz time-domain spectroscopy (THz-TDS). Spectrometers, together with physical models explaining the interaction between a sample and T-ray radiation, are progressively being developed. Nevertheless, measurement errors in the optical constants, so far, have not been systematically analyzed. This situation calls for a comprehensive analysis of measurement uncertainty in THz-TDS systems. The sources of error existing in a terahertz spectrometer and throughout the parameter estimation process are identified. The analysis herein quantifies the impact of each source on the output optical constants. The resulting analytical model is evaluated against experimental THz-TDS data.