It is well established that there are differentials in health among individuals of different Black and Minority Ethnic (BME) heritage. BME communities are unevenly concentrated across England and Wales. This paper examines the effect of residential density of one's own‐ethnic group on physical health outcomes in England and Wales. In addition, it explores whether the effects of ethnic density on physical health outcomes are concealed by area deprivation and whether individual economic deprivation and area deprivation play a role in this relationship. Data on BME and White British individuals from the first wave of the UK Household Longitudinal Study (Understanding Society) are linked with ethnic density characteristics from the 2011 UK Census and with the Index of Multiple Deprivation from the 2010 English and Welsh Governments. Multilevel logistic regression is then employed in the analysis. The results show that individuals from BME groups who live in areas with a high density of their own‐ethnic group are more likely to report poor health, but these effects are mediated by both individual economic deprivation and area deprivation. The results highlight that facilitating the improvement of economic and social conditions for individuals in deprived areas could help reduce the negative differentials in health outcomes experienced by individuals from BME communities. © 2016 The Authors Population, Space and Place Published by John Wiley & Sons, Ltd