Research on the consequences of diversity in teams continues to produce inconsistent results. We review the recent developments in diversity research and identify two shortcomings. First, an understanding of the microdynamics affecting processes and outcomes in diverse teams is lacking. Second, diversity research has tended to treat different social categories as equivalent and thus not considered how members’ experiences may be affected by their social category membership. We address these shortcomings by reviewing research on stereotypes, which indicates that stereotypes initiate reinforcing microdynamics among (a) attributions of a target team member’s warmth and competence, (b) perceiving members’ behavior toward the target team member, and (c) the target team member’s behavior. Our review suggests that perceivers’ impression formation motivation is the key determinant of the extent to which perceivers continue to treat a target based on categorization. On the basis of our review, we provide an integrative perspective and corresponding model that outlines these MIcrodynamics of Diversity and Stereotyping in Teams (MIDST) and indicates how stereotyping can benefit as well as harm team functioning. We discuss how this integrative perspective on the MIDST relates to the social categorization and the information/decision-making perspective, set a research agenda, and discuss the managerial implications.