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This paper challenges one of the most powerful hypotheses in political economy - that ethnic diversity dampens development. A large and influential body of political economy scholarship has shown that ethnic diversity impedes political, economic and social development across countries. Yet this scholarship has been shown to be notoriously isolated from from a serious consideration of history and politics (Singh and vom Hau). Building on this important theoretical critique and a growing revisionist empirical scholarship that contradicts the ‘diversity deficit’, we show that the effect of ethnic fractionalization across on development is conditional on the inclusiveness of nationalism. Focusing on religion, a critical but relatively understudied identity within comparative politics, we find that across all three types of development - political, economic and social, the effect of religious diversity is conditional on the inclusiveness of nationalism. Following an influential institutionalist approach to ethnic politics, we conceptualize the inclusiveness of nationalism in institutionalist terms. We find that inclusive nationalism serves as a bulwark against the potentially divisive effects of a diverse demography. Increasing religious fractionalization does not dampen development in the presence of religiously inclusive institutions. Contrary to conventional wisdom, we present evidence from cross-national, temporal regression analysis and case studies that diversity is not a curse in a world of inclusive nationalism.