For more than a century, hundreds of psychologists have studied race and ethnicity. Yet this scholarship, like American culture at large, has been ambivalent, viewing race and ethnicity both as sources of pride, meaning, and motivation as well as sources of prejudice, discrimination, and inequality. Underlying this ambivalence is widespread confusion about what race and ethnicity are and why they matter. To address this ambivalence and confusion, as well as to deepen the American conversation about race and ethnicity, the article first examines the field's unclear definitions and faulty assumptions. It then offers an integrated definition of race and ethnicity--dynamic sets of historically derived and institutionalized ideas and practices--while noting that race, although often used interchangeably with ethnicity, indexes an asymmetry of power and privilege between groups. Further, it shows how psychology's model of people as fundamentally independent, self-determining entities impedes the field's--and the nation's--understanding of how race and ethnicity influence experience and how the still-prevalent belief that race and ethnicity are biological categories hinders a more complete understanding of these phenomena. Five first propositions of a unified theory of race and ethnicity are offered.