An organization's diversity climate refers to employees' shared perceptions of the policies and practices that communicate the extent to which fostering diversity and eliminating discrimination is a priotrity in the organization. The authors propose a salient element of the organizational context, the racial composition of the community where the organization is located, serves an important signaling function that shapes the formation of climate perceptions. In a study of 142 retail bank units in the United States, evidence is found for a relationship between the racial composition of an organization's workforce and diversity climate that is moderated by the racial composition of the community where the organization is located. The results suggest that when few racial minorities live in the community in which an organization is embedded, workforce diversity has an impact on employees' diversity climate perceptions. As racial minority popular share increases, workforce diversity tends to lose this signaling value.