Diversity research has long assumed that individuals’ perceptions of diversity are accurate, consistent with normative theories of judgments in economics and decision theory. We challenge this assumption. In six experiments, we show that when there is more diversity along one dimension (e.g., race, clothing color), people also perceive more diversity on other dimensions (e.g., gender, skill) even when this cannot reflect reality. This spillover bias in diversity judgment leads to predictable errors in decision making with economic incentives for accuracy, and it alters support for affirmative action policies in organizations. Spillover bias in diversity judgment may help explain why managerial decisions about groups often appear to be suboptimal and why diversity scholars have found inconsistent associations between objective diversity and team outcomes.