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This study investigated whether children's and adolescents' judgments about exclusion of peers from peer group activities on the basis of their gender and race would differ by both age level and the context in which the exclusion occurred. Individual interviews about exclusion in several different contexts were conducted with 130 middle-class, European American children and adolescents. Younger children were expected to reject exclusion, by using judgments based on moral reasoning, regardless of the potential cost to group functioning, whereas older children were expected to condone exclusion on the basis of group membership in cases in which the inclusion of these children might interrupt effective group functioning. On measures of judgments, justifications for those judgments, and ratings of the appropriateness of exclusion, the vast majority of children used moral reasoning and rejected exclusion in contexts in which only the presence of a stereotype justified it. As expected, however, older children (13 years) were more likely to allow exclusion than younger children (7 and 10 years) when group functioning was threatened, and they justified this exclusion by using appeals to effective group functioning.