The use of race-conscious admissions practices to achieve student diversity in academic institutions has recently been challenged. An understanding of how racial diversity in law school affects students is useful to develop administrative policies that support social and intellectual growth of students after they are admitted. A nationally-representative sample of 2,180 students from 64 accredited U.S. law schools was used to model the mechanism through which institutional diversity may influence student outcomes in a multigroup, multilevel SEM framework. Results suggest that racial heterogeneity directly and indirectly increases exchange of ideas and decreases racist/classist attitudes. The effects of racial diversity were mediated by increased contact with racially diverse peers. Results were similar for White and non-White students. This study confirms the usefulness of admissions policies that permit racial diversity in academic institutions, and imply that educators should focus on increasing intergroup contact between students.