Recognition and misrecognition have been theorized as key concepts for social justice. Misrecognition involves being disrespected or labelled in ways which do not accord with a person’s self‐identify. Racism can be understood as a specific form of misrecognition but little research has explored this form or drawn on notions of misrecognition in the discursive psychological study of racism. Our study addresses this gap by drawing on discursive psychology and conversation analysis to examine reports of racial encounters in public spaces, where misrecognition of the targets’ nationality is invoked. We demonstrate that instances of misrecognition are judged as racism through the selection and use of categories and/or category‐sensitive predicates that exclude the target of them from (national) category membership to which they claim entitlement. People reporting racialized encounters and those responding to them treat the description and evaluation of such incidents sensitively, orienting to the delicacy of alleging racism. In this article, we enhance theoretical understandings of misrecognition by showing how it is constructed interactionally and demonstrate the value of notions of recognition and misrecognition for the study of racism.