Abstract: Having cross‐ethnic friends in early adolescence is associated with more positive intergroup attitudes, but little is known about the social signaling function of the diversity of friends. The current study examined how the ethnic diversity of students’ friends in seventh grade is related to their social status (e.g., acceptance, rejection, and social impact) by eighth grade in multi‐ethnic schools. It is hypothesized that friend diversity is (a) related to higher social status among ethnic out‐group peers as it signals inclusiveness, but (b) related to lower in‐group social status as diversity of friends may threaten the ethnic in‐group. Utilizing a longitudinal sample of ethnically diverse youth (n = 4653) from 26 middle schools, the study capitalizes on outgoing friendship nominations in seventh grade and incoming acceptance and rejection nominations in eighth grade, while controlling for overall social status in grade seven. A novel index was used to calculate the diversity of youth's friend groups, and precise coding was done to retain biracial youth in the analytic sample. Results showed that having diverse friends was related to higher visibility (i.e., social impact) and greater acceptance from ethnic out‐group members. In contrast, adolescents with diverse friend groups were less visible and less accepted by their in‐group. Diversity of friends was not associated with out‐group or in‐group rejection. Findings highlight the importance of understanding how the composition of friend groups may signal intergroup attitudes and in‐group solidarity in ways that have social status trade‐offs among out‐ and in‐group members.