The 1930s in Australia was a period marked by rising awareness of and attention to Australia’s ‘half-caste problem’. Released and promoted in tandem with the 1938 sesquicentenary of Australia’s settler colonisation, Xavier Herbert’s novel Capricornia appeared as a searing protest against the exclusion of so-called ‘half-castes’ from white Australia. The novel itself was published by the Publicist Publishing Company, platform for rationalist and businessman W.J. Miles and editor and polemicist P.R. ‘Inky’ Stephensen, both strict advocates of a racially pure white Australia. Yet together, Herbert and his patrons capitalised on the sesquicentenary, and the Day of Mourning protests they helped organise, to promote what they proclaimed the ‘Great Australian Novel’. This article reads Herbert’s racial understandings in relation to those of Stephensen, and reads them both in relation to the prevailing circumstances of 1930s Australia, as well as the underlying dynamics of settler colonialism. Whereas Stephensen subscribed to the ‘Aryan Aborigines’ hypothesis and emphasised Australia’s supposed racial purity, Herbert celebrated instead the potentiality of ‘Euraustralian’ hybridity. While these approaches are ostensibly at odds, this article argues instead that they share a common drive towards settler indigenisation and independence as their ultimate aims.