Using school and individual panel data, we study the relation between school socioeconomic diversity and academic performance in Chile, an educational system with strong market incentives and high socioeconomic segregation. We document a strong reduction in diversity between 2000-2013, mainly driven by private-voucher schools with extensive use of co-payment. We explode variations over time and between different classes within school. We find a small and positive impact of diversity, with increases of 0.010-0.019 standard deviations on test scores. However, the effect is higher in schools with low socioeconomic status. One mechanism that partially explains this finding is expectations. Students, parents and teachers have higher expectations regarding students’ academic future in more diverse schools, with teachers’ expectations being particularly important.