ABSTRACT. Much of the inequality literature has focused on national inequality, but local inequality is also important. Crime rates are higher in more unequal cities; people in unequal cities are more likely to say that they are unhappy. There is a negative association between local inequality and the growth of city-level income and population, once we control for the initial distribution of skills. High levels of mobility across cities mean that city-level inequality should not be studied with the same analytical tools used to understand national inequality, and policy approaches need to reflect the urban context. Urban inequality reflects the choices of more and less skilled people to live together in particular areas. City-level skill inequality can explain about one-third of the variation in city-level income inequality, while skill inequality is itself explained by historical schooling patterns and immigration. Local income also reflects the substantial differences in the returns to skill across, which are related to local industrial patterns.