This study examined direct and interactive effects of social–emotional adjustment, national and ethnic identification, and school ethnic composition on friendship homophily among 214 ethnic minority and 183 ethnic majority English children, aged between 5 and 11 years. The data came from a longitudinal study, which included 3 time points, spanning a 12‐month period. Results of multilevel latent growth curve models showed that among ethnic minority English children (teacher‐rated), peer problems and ethnic identity were associated with more friendship homophily, whereas a bicultural identity was not related to more friendship homophily. Among ethnic majority English children, the effects of peer problems and English identity were moderated by school ethnic composition, such that these factors were not associated with more friendship homophily in more ethnically diverse schools. The findings are discussed on the basis of theories of intergroup contact and intergroup threat.