This research examined the relation between the effects of workplace diversity (defined as the proportion of coworkers of same ethnicity as the respondent) and psychosomatic complaints, psychological well-being, life satisfaction, and job satisfaction. A sample of 648 African American and Latino workers was surveyed in Chicago and New York City. A nonlinear (inverted U-shaped) relationship between co-ethnicity and the outcomes was found, such that poorer psychological functioning was observed among workers with a very small or a very high proportion of co-ethnic coworkers. The importance of disentangling the meaning of diversity in light of occupational segregation issues is discussed. © 2006 Wiley Periodicals, Inc.