New Zealand's 10-year experience with self-governing schools operating in a competitive environment provides new insights into school choice initiatives now being hotly debated in the United States with limited evidence. This article examines how New Zealand's system of parental choice of schools played out in that country's three major urban areas with particular emphasis on the sorting of students by ethnic and socioeconomic status. The analysis documents that schools with large initial proportions of minorities (Maori and Pacific Island students in the New Zealand context) were at a clear disadvantage in the educational market place relative to other schools and that the effect was to generate a system in which gaps between the “successful” and the “unsuccessful” schools became wider. © 2001 by the Association for Public Policy Analysis and Management.