Educational research has provided evidence that racial and ethnic minority students are disadvantaged in today's educational systems. Teachers' stereotypical expectations are believed to contribute to these disadvantages because teachers make decisions about grades, special education, tracking, and school placement. Research so far has shown that teachers' stereotypical expectations might lead to biased judgments, but the cognitive processes underlying those judgments are less clear. Using an experimental design, we investigated whether inservice and preservice teachers' judgment accuracy depended on the ethnicity of the students. Moreover, in employing a recognition task, we were able to investigate the kinds of information teachers' took into account about ethnic minority students when making school placement recommendations. In a sample of 64 inservice and preservice teachers, judgments were found to be less accurate for ethnic minority students than for ethnic majority students, and teachers felt less confident about the judgments they made for ethnic minority students. This lower accuracy of school placement recommendations involved recommendations of ethnic minority students to both higher and lower placements than could be justified academically. The recognition data revealed that under- and overestimation of ethnic minority students were due to a less accurate encoding of the information about ethnic minority students than about ethnic majority students and that grade information for ethnic minority students in particular was not strongly encoded. The findings are discussed in terms of their implications for tracked systems and in terms of interventions that might have the potential to reduce stereotype application.