With globalization and immigration, societal contexts differ in sheer variety of resident social groups. Social diversity challenges individuals to think in new ways about new kinds of people and where their groups all stand, relative to each other. However, psychological science does not yet specify how human minds represent social diversity, in homogeneous or heterogenous contexts. Mental maps of the array of society’s groups should differ when individuals inhabit more and less diverse ecologies. Nonetheless, predictions disagree on how they should differ. Confirmation bias suggests more diversity means more stereotype dispersion: With increased exposure, perceivers’ mental maps might differentiate more among groups, so their stereotypes would spread out (disperse). In contrast, individuation suggests more diversity means less stereotype dispersion, as perceivers experience within-group variety and between-group overlap. Worldwide, nationwide, individual, and longitudinal datasets (n = 12,011) revealed a diversity paradox: More diversity consistently meant less stereotype dispersion. Both contextual and perceived ethnic diversity correlate with decreased stereotype dispersion. Countries and US states with higher levels of ethnic diversity (e.g., South Africa and Hawaii, versus South Korea and Vermont), online individuals who perceive more ethnic diversity, and students who moved to more ethnically diverse colleges mentally represent ethnic groups as more similar to each other, on warmth and competence stereotypes. Homogeneity shows more-differentiated stereotypes; ironically, those with the least exposure have the most-distinct stereotypes. Diversity means less-differentiated stereotypes, as in the melting pot metaphor. Diversity and reduced dispersion also correlate positively with subjective wellbeing.