Using uniquely detailed data on primary school children, we show that teachers who hold prejudicial attitudes towards an ethnic group create socially segregated classrooms. We identify this relationship by exploiting a natural experiment where newly arrived refugee children are randomly assigned to teachers. We elicit children's social networks to construct multiple measures of social exclusion and ethnic segregation in classrooms. We find that teachers' ethnic prejudice, measured by an Implicit Association Test, significantly lowers the prevalence of social ties between host and refugee children, increases homophily amongst host children, and puts refugee children at a higher risk of bullying victimization. Our results suggest that teachers' ethnic prejudice may be a significant barrier against building cohesive schools in ethnically diverse communities.