This paper theoretically and empirically investigates the relationship between local‐level ethnic composition and the spread of conflict. Cross‐country literature on conflict finds that ethnic diversity, and ethnic polarization in particular, are associated with greater incidence of conflict. However, the question remains as to where within ethnically diverse countries conflict begins and where and how it spreads. To study this question, I present a model in which local ethnic groups' decision to attack depends on three key variables: ethnic population shares, ethnic groups' weapons ratio, and the share of co‐ethnic successes in the battles that took place in the previous period. The model generates three predictions: conflict starts in ethnically homogeneous areas and only later spreads to ethnically heterogeneous areas; neighbor co‐ethnics' success increases subsequent probability of winning and may lead to attack; and greater ethnic diversity is associated with costlier conflict. I find strong support for these predictions using detailed municipal‐level data on attacks and ethnic polarization during the initial spread of the Bosnian Civil War. Moreover, my conflict model is able to predict the sequence of actual conflict outcomes with reasonably high accuracy. (JEL: D39, D74, J15, R12)