Two simulation studies examined the effect of peer group rejection on 7 and 9 year old children's outgroup prejudice. In Study 1, children (n = 88) pretended that they were accepted or rejected by their assigned group, prior to competing with a lower status outgroup. Results indicated that rejected versus accepted children showed increased anxiety, and liked the ingroup less, but did not differ in their reduced liking for the outgroup. In Study 2, participants (n = 82) were accepted by a new group after being accepted or rejected by their initial group. Results showed that rejected versus accepted children liked the initial ingroup less, but did not differ in their greater liking for the new ingroup, nor in their level of anxiety. However, rejected compared with accepted children displayed prejudice towards the outgroup. The conditions under which peer group rejection impacts on children's outgroup prejudice are discussed.