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Attention to increasing racial segregation in US schools has grown, and school districts across the country are currently considering plans to diversify enrollments. While the education policy literature has documented demographic trends and evaluated the impacts of desegregation, we know little about how racial composition affects youth developmentally, a major gap in light of evidence from sociology and psychology demonstrating potential harms for minoritized youth in integrated settings. In this theoretical review, I propose filling this gap by integrating psychological and organizational perspectives to understand ethnic racial identity development as sensemaking. I argue that by focusing on interactions between individuals and their organizational context, we can understand how demographic context affects youth development and their engagement with school.