Despite declining group inequality and the rapid expansion of the black middle class in the United States, major urban centers with significant black populations continue to exhibit extreme racial separation. Using a theoretical framework in which individuals care about both the affluence and the racial composition of neighborhoods, we show that lower inequality is consistent with extreme and even rising levels of segregation in cities in which the minority population is large. Our results can help explain why segregation continues to characterize the urban landscape even though survey evidence suggests that individuals favor more integration than they did in the past.