What determines how contact with the out-group affects behavior? We show experimentally that casual interethnic contact in a postconflict society can increase ethnic bias. Day laborers in Kabul, Afghanistan, were equally altruistic toward their in-group and their out-group when out-group members were not physically present. When out-group members were physically present in an environment where no guidance for interaction or explicit incentives for cooperation were given, out-group altruism was decreasing in time among those who did not speak the out-group’s language, suggesting that this contact highlights differences in descent-based attributes and increases in-group identification. We provide evidence for a psychological mechanism leading to in-group bias in casual, everyday interactions in a postconflict society, with implications for studying the nature of ethnic bias in political and economic behavior. Results suggest that interethnic interaction does not automatically improve ethnic relationships, and attention should be paid to the conditions under which interaction occurs.