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We study the effect of preschool composition on children’s language skills at school entry. Segregation in early education is highly developed, and the resulting differences in preschool composition affect children’s development. However, the exact relationship of this association is unclear. Using the example of a medium‐sized German city, we combine data from a school entry examination and a preschool survey (7,604 children in 84 daycare centers) and employ multivariate latent and logistic regression analyses within a multilevel modelling framework. Composition variables are entered as continuous variables, quadric terms, and thresholds. Irrespectively of the specific composition variables (e.g. proportion of poor or migrant children), we find thresholds of 30% to 40% where preschool composition starts to negatively impact children’s competencies.