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Sandra Bem has suggested that societal use of gender as a functional category increases gender stereotyping. The present study tests Bem's theory and the additional hypothesis that children's classification skill moderates environmental effects on gender stereotyping. Elementary school children (N= 66) were given pretest measures of gender stereotyping and of classification skill and assigned to 1 of 3 types of school classrooms in which teachers made: (1) functional use of male and female groups, (2) functional use of “red” and “green” groups, or (3) no explicit groups. After 4 weeks, children completed posttest measures of gender and intergroup attitudes. As predicted, the functional use of gender categories led to increases in gender stereotyping, particularly among those children with less advanced classification skills. The functional use of color categories did not result in highly stereotypic perceptions of groups. Theoretical and educational implications are discussed.