Some recent findings suggest that increasing ethnic diversity is associated with declining social cohesion within ethnic groups. Prevailing findings indicate that diversity is connected to declines in some forms of trust but not consistently to declines in participation. I evaluate the extent to which three proposed mechanisms—divergent norms, networks and preferences—might explain this phenomenon. The mechanisms all suggest that diversity contributes to declining in-group trust due to social withdrawal; yet the implied declines in participation are not consistently in evidence. The mismatch between prevailing findings and proposed mechanisms suggests a need to consider alternate explanations for declining trust amidst diversity. Drawing on 286 interviews in four newly diverse US immigrant destinations, I find that increasing diversity reveals in-group cleavages regarding how to respond to the out-group. Among immigrants, differing views on integration foster in-group mistrust. Similarly, among non-immigrants, disagreements over local policies towards foreign-born residents undermine in-group trust. The alternate mechanism proposed here, focusing on how divergent in-group preferences diminish trust, need not be limited to the new immigrant destination context and better explains prevailing findings.