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Can social-psychological theory provide insight into the extreme racial disparities in school disciplinary action in the United States? Disciplinary problems carry enormous consequences for the quality of students’ experience in school, opportunities to learn, and ultimate life outcomes. This burden falls disproportionately on students of color. Integrating research on stereotyping and on stigma, we theorize that bias and apprehension about bias can build on one another in school settings in a vicious cycle that undermines teacher-student relationships over time and exacerbates inequality. This approach is more comprehensive than accounts that consider the predicaments of either teachers or students alone but not the two in tandem; it complements nonpsychological approaches; and it gives rise to novel implications for policy and intervention. It also extends prior research on bias and stigmatization to provide a model for understanding the social-psychological bases of inequality more generally.