Do socioeconomic disparities between ethnic groups influence whether a country democratizes and remains democratic? I propose that, on average, high levels of ethnic inequality do not affect the prospects of democratization due to competing mechanisms. Although such inequalities give rise to grievances that fuel the demand for democracy, they also make the ruling elites from dominant groups less willing to concede political rights. However, ethnic inequality is generally associated with an increased risk of democratic breakdowns because high-inequality countries are more likely to experience politicized ethnic divides, distributional conflicts, and polarization. Investigating these arguments with time-series, cross-national data, I find that while there is a relatively strong and robust association between ethnic inequality and the risk of democratic breakdown, ethnic inequality is not associated with transitions to democracy. Examinations of potential mechanisms based on national and group-level data lend further support to the argument.