Although ethnic diversity is widely believed to undermine social trust, several scholars have argued that this outcome ultimately depends on the extent of high-quality contacts between diverse groups as well as the extent of equality in society. This article scrutinises these different hypotheses by exploring the association between ethnic diversity and social trust among Swedish schoolchildren. Building on data from Sweden, where legacies of equality would be expected to provide unique opportunities for building trust among diverse groups, the contribution of the article to the literature is twofold. First, it was found that contextual diversity is only weakly related to adolescents’ trust. Furthermore, while interactions revealed that a higher socio-economic level in a classroom reinforces, rather than cushions, the adverse effect, it is concluded that contextual measures obscure the micro-level dynamic underlying the association between diversity and trust in classrooms. Second, when accounting for compositional effects, and the distinction between in-group and out-group contact, the findings strongly supported the conflict hypothesis, while rejecting the contact hypothesis. The principal finding is that ethnic diversity in a classroom undermines social trust among native-born adolescents, whereas the effect is the exact opposite for minorities. In addition, social trust is only promoted if adolescents interact with members of their ethnic in-group. Because these disconcerting results were found in the high-trust context of Sweden, it is suggested that similar findings are likely in less favourable settings. The article concludes by arguing that the high levels of social trust in traditionally homogenous, but increasingly segregated, countries such as Sweden may conceal the fact that individuals primarily include others who are similar to themselves in their ‘imagined communities’.