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This study uses a multilevel analysis of data from the Early Childhood Longitudinal Study, Kindergarten Class of 1998-99 (ECLS-K) to better understand the relationship between schools’ socioeconomics and racial demographic characteristics, and perceptions of Black students’ academic ability. The analysis shows that Black students are perceived as having lower levels of literacy compared to their peers, even when controlling for their actual reading ability. Moreover, in schools with greater concentrations of Black students, students’ were perceived as having higher literacy skills compared to students in schools with lower concentrations of Black students. This may help explain why Black students are more likely to be classified as learning disabled or mentally retarded in schools district with lower concentrations of Black students.