Contemporary urban fabrics are characterized by ethnic diversity in which considerable portions of minority groups reside in ethnic enclaves. These groups are exposed to the majority populations to different extents in various arenas. The current study addresses the association between exposure to the majority and identification with the ethnic residential environment. It examines this question among Arabs in Israel, who live mostly in distinct ethnic localities constituting part of Israel’s metropolitan areas, and are a native minority subjected to social exclusion and political marginalization. The methodology incorporates quantitative (310 questionnaires) and qualitative (25 in-depth interviews) data. Core findings reveal that exposure to the Jewish majority reduces place identity overall, yet has complex effects on place identity formation. These findings indicate that quality-of-life in the locality, including infrastructure upkeep and opportunities to foster community, are more strongly related to place identity than overt political dimensions. These issues are discussed in the context of encounters with difference and segregation.