This article aims to report a single case study of how an Islamic boarding school ("pesantren") in Yogyakarta, Indonesia, prepared students for a multicultural Indonesia. Despite negative portrayal by the Western media about increasing Islamic radicalism in some "pesantren", many "pesantren" are in fact transforming into modern Islamic institutions, incorporating the teaching of democratic values and practices, endorsing civil society and community development, and inculcating cultural/religious diversity and tolerance in students. Using schoolyard and classroom ethnographies, along with in-depth interviews and focus group discussions (FGD) with teachers and students, the study found that classroom and non-classroom practices of the "pesantren" promote the development of multicultural education. Several subjects within both curriculum developed by the government and curriculum developed by "pesantrens" discuss a considerable number of issues that relate to cultural and religious diversity, tolerance, citizenship and democracy. The non-classroom practices of "pesantren" offer invaluable and intensive experiences for students to socialise with peers from different ethnic and cultural backgrounds. However, challenges remain for the "kyai" (the "pesantren"'s great leader) and other leaders, such as teachers' lack of competency, unclear multicultural objectives in both the "pesantren"'s curricula and the "pesantren"'s traditions, and unequal relations among students and among teachers. These challenges must be overcome to further develop education for cultural diversity. (Contains 1 table and 9 notes.)