Extensive research explores how increasing ethnic out-group populations in society affects inter-group attitudes. Drawing on the threat and contact hypotheses, this study develops and tests a framework examining the role of segregation in the out-group size/prejudice relationship. We suggest that whether increasing minority share in a community generates processes of contact and/or perceived threat will depend on how segregated groups are from one another. This, in turn, will determine when high minority share communities have positive, negative, or null effects on inter-group attitudes. Using data from white British individuals in England, we observe that community segregation moderates the effect of community percent non-white British on prejudice, as well as mechanisms of positive inter-group contact and perceived threat. Residents of more homogeneous communities report relatively warm inter-group attitudes, regardless of how segregated they are. Residents living among high proportions of out-group where the groups are integrated report an improvement in out-group attitudes. It is only residents living among large out-group populations where groups are more segregated from one another-at the nexus of high minority share and high segregation-who report colder out-group attitudes. This higher prejudice is driven by both lower positive contact and higher perceived threat in these communities. Using two waves of cohort panel data, longitudinal analysis provides more robust evidence in support of the diversity-segregation nexus framework: communities becoming more ethnically mixed and segregated see prejudice increase, while those becoming more mixed and integrated see stable, or somewhat improving, relations. Collectively, this paper shows that mechanisms of positive contact and threat appear conditional on both the size of out-groups in an area and how segregated groups are from one another, generating key differences in when and how increasing ethnic out-group size affects inter-group relations.