Team cultural diversity, the degree to which working team members differ in culture‐related factors, may affect healthcare teams’ outcomes. This paper focuses on one particular source of cultural diversity, namely religion, and examines its relation to the production efficiency of hospital wards. Building on the categorization‐elaboration model of organizational diversity, the authors test an empirical model positing that team religious diversity has non‐linear effects on efficiency, and considering the role of moderating variables of the relation diversity–efficiency. Empirically, the authors adopt a two‐step approach, whereby the first step applies data envelopment analysis to estimate efficiency scores for each team, and the second investigates the effect of diversity and of moderating variables. The model is tested on a sample of hospital wards from three large hospitals in Dubai. The results suggest an inverse U‐shaped relation between religious diversity and the wards’ efficiency. Evidence is provided that the relation is moderated by task complexity, task conflict, team leader tenure and diversity in nationality. This study advances research on the management of hospital team diversity by emphasizing the complexity of diversity effects and the importance of contextual factors.