Research over the past two decades has demonstrated that individuals are better at the recognition and discrimination of own-versus other-race faces. Recent evidence, however, supports an own-race effect at the level of perceptual encoding in adults. The current study examines the perceptual basis of the own-race effect in secondary students from two racially segregated communities (White and South Asian). The contact hypothesis is investigated, as other-race experience may influence other-race face perception. Face stimuli were generated by morphing together South Asian and White faces along a linear continuum. In a same/different perceptual discrimination task participants judged whether face stimuli were physically identical to, or different from, the original faces. Results revealed a significant own-race effect for the White participants only, wherein they were better at discriminating White relative to South Asian faces. Other-race individuating experience was found to predict the own-race effect, indicating that other-race experience influences other-race face perceptual expertise. Copyright (c) 2006 John Wiley & Sons, Ltd.