Failure to understand the role of skin color in the development of ethnoracial identity among Hispanic Americans has led to continued psychic and educational problems for them, hidden the cause of real and potential divisiveness in the community, and prevented the development of effective strategies for overcoming ethnic prejudice. The ethnic group's emphasis on cultural identity is reinforced by a need to conceal its racial roots as evidence of heterogeneity and dissimilarity from the dominant society in order to prevent the social and psychological consequences that differential assimilation on the basis of race has on its members. The result is a slowing of the acculturation process where the pull toward reaping the potential educational, economic, and political rewards of cultural adaptation is balanced against the eventual demise of the Hispanic family and community. Part I of this paper presents key propositions that are derived from this report and lays out problems created for Latinos by their efforts to integrate into America's biracial society. Part II discusses the development of phenotypes, race prejudice, ambiguous social relationships in Latin America, and the denial of race as an issue in the peoples' cultural identity. Part III examines the impact of skin color prejudice on contemporary Puerto Ricans and Mexican Americans. Part IV discusses the report's implications for social research. An extensive reference list is included. (JHZ)