This paper challenges the conventional wisdom that objective distance between team members (e.g., measured in miles) translates directly and fully into subjective distance (i.e., a team's perception of distance between its members). Drawing on social information processing theory, we argue that the level of subjective distance is likely to predict important team outcomes better than the level of objective distance. Using responses from 678 team leaders and team members pertaining to 161 new product development projects in the software industry, our results show that the subjective perception of distance is affected rather by team members' national diversity than their physical distance. We also find that subjective distance has a significant impact on team collaboration, while objective distance measures, however, have no impact on team collaboration. Implications for theory and practice are discussed.