This policy overview draws upon two studies, one theoretical and one empirical, to explore lessons from medieval Indian Ocean trade for supporting ethnic tolerance in contemporary settings. The overview begins by sketching a model of inter-ethnic trade and violence in environments where there are “local and “non-local ethnic groups. The model suggests that three conditions are necessary to support peaceful coexistence between these groups over time: complementarities between groups, a high cost to replicate or expropriate the source of another group’s complementarity, and a mechanism to share the gains from inter-group exchange. The article then describes how these conditions were satisfied among Hindu and Muslim traders in medieval Indian ports from the rise of Islam to European ascendance in the 17th century. The article characterizes the institutions that emerged to bolster religious tolerance in these towns during the medieval period and that continued to support religious tolerance two centuries after the decline of Muslim dominance in overseas trade. Finally, the article draws lessons from the theory and India’s institutional legacy to understand why ethnic tolerance fails and how tolerance may be fostered in contemporary settings.