Teachers' subjective understandings of their students' cognitive abilities have important implications for classroom interactions, children's access to resources and opportunities, and educational equity more broadly. Using nationally representative data and three-level hierarchical linear models, this study explored the links between teacher perceptions and children's sociodemographic backgrounds. The authors find that teachers perceive substantial racial-ethnic, socioeconomic, and gender differences in children's literacy skills. Roughly half of these disparities are explained by actual between-group differences. The remaining perceptual inaccuracies flow more from classroom characteristics than from teachers' professional or personal backgrounds (e.g., their own race or ethnicity). Specifically, holding students' social and academic backgrounds constant, the authors find that teachers in lower-socioeconomic-status and lower-achieving contexts more often underestimate their students' abilities. These results highlight the importance of recent policy efforts to avoid isolating traditionally disadvantaged children. (Contains 5 tables.)