We investigated the effects of leader-member exchange (LMX) differentiation on individual and group performance with a sample of 120 work groups consisting of 834 employees who represented six different organizations. LMX differentiation was defined as the degree of variability in the quality of LMX relationships formed within work groups. Hierarchical Linear Modeling (HLM) results did not indicate support for a main effect of LMX differentiation on individual performance. Rather, the results demonstrated that LMX moderated the relation between LMX differentiation and individual performance, such that increases in LMX differentiation were accompanied by increases in individual performance for low LMX members, but no change in individual performance for high LMX members. At the group level, there was not a main effect for LMX differentiation on group performance. However, the hierarchical regression results revealed that the relation between LMX differentiation and group performance was moderated by task interdependence, such that for groups high in task interdependence, the greater the differentiation among group members, the higher the performance of the group. Conversely, for groups with relatively lower levels of task interdependence, differentiation among subordinates was not related to group performance. Finally, LMX differentiation was positively related to group performance in groups with a low LMX median, but was not related to performance in groups with a high LMX median. Copyright © 2006 John Wiley & Sons, Ltd.