A number of authors have recently suggested that cities are becoming increasingly important as sites for the negotiation of ethnic diversity. While multiculturalism has been declared ‘dead’ in many countries, cities are now experimenting with new ways to accommodate ethnic diversity. This article reports on research conducted in Amsterdam. In this city, a ‘minority policy’ has been replaced by a qualitatively different ‘diversity policy’. Even though the diversity policy meets many of the criticisms that have been made against multiculturalism, the new policy also generates its own forms of exclusion. It is concluded that the stress on intercultural interaction and an emphasis on high‐quality policies and projects can in practice produce results that run counter to the intentions of policymakers as well as critical theorists. Ironically, these two features of the diversity policy tend to depoliticize societal problems and frustrate political mobilization of some marginalized groups.