Research has validated that intragroup cooperation, rather than competition, produces more positive group interaction and interpersonal acceptance which leads to better performance. The unique values of culturally diverse group members, however, may influence group processes and performance if these group members respond differently to situational cues. Research on the interaction between cultural diversity and competitive team situations would benefit organizations that employ an increasingly diverse work force. The primary purpose of this study is to explore the effects of cultural diversity on group performance and group processes by comparing culturally diverse and culturally nondiverse groups under conditions of intergroup competition and noncompetition. This experiment was conducted using 500 upper‐level undergraduate students enrolled in a principles of management course at a large university in the southwestern United States. The results of this experiment indicate that the competitive nondiverse groups performed better than did the noncompetitive diverse groups in terms of quality of performance. Results also suggest that both the culturally diverse and culturally nondiverse groups outperformed their best individual members' scores when they were matched with competitive situations that enhanced their innate group processing styles. Organizations can increase their effectiveness by appreciating that diverse and nondiverse groups respond differently under conditions of competition and noncompetition.