Diversity and equality are key issues confronting sport. This article draws on findings from qualitative research carried out in Australia to critically examine how diversity is understood and valued in community sport. The findings suggest that there is a discrepancy between the policy objectives of government and sport organizations and the way in which diversity is understood and responded to in practice. Diversity management is not being adopted widely among local sports clubs. The idea of a moral imperative to cater to people with diverse backgrounds and abilities is largely absent; rather, the dominant discourse is underpinned by a business rationale which interprets diversity in terms of benefits and costs to the organization. This business-driven approach is often detrimental to the social policy objective of ensuring equitable outcomes in sport. A fundamental reconsideration of the rationale and practice of managing diversity in sport is therefore necessary.