Intelligence quotient (IQ) scores are widely accepted as measures of academic potential. However, both hereditary and environmental factors also play a role in performance. The limitations of IQ tests require that they be handled differently when administered to students from backgrounds other than the dominant cultural group. In addition, teachers, administrators, and psychologists must be weary of assigning labels to test results because these labels often tend to shape teachers' expectations. Although these facts are accepted, there is evidence that this acceptance does not readily transfer into educational practice. In some educational contexts, a disproportionate number of immigrant and minority language students are being assigned to special education classes and vocational streams as a combined result of the indiscriminate use of mental tests and the cultural and linguistic orientation of school programs. This report reviews Canadian literature on this topic and relates the findings of a study in which teacher referral forms and psychological assessments of more than four hundred New Canadian children were analyzed. The report discusses (1) the origins of bias in IQ tests, (2) the Canadian context, (3) quantitative and qualitative analyses of the teacher referral, (4) the psychological assessment, and (5) policy implications. (Author/JK)