Significance Urbanization and agglomeration of economic activity are key drivers of economic development. Many factors underlying city sizes and locations continue to be well studied. However, a key factor has so far been generally ignored: the role of the ethnolinguistic composition of local populations. We address this gap, drawing on a very detailed dataset on local urban agglomeration and ethnolinguistic diversity. We find that, in multiethnic areas, social tensions arise more easily, discouraging the move to bigger cities. Ethnolinguistically diverse regions feature less urbanization and agglomeration, with potentially profound economic consequences.