Recently in numerous European countries of immigration, there has been a widespread ‘moral panic’ about immigrants and ethnic diversity. In The Netherlands, a backlash has occurred in policy and in public discourse, with migrants being blamed for not meeting their responsibility to integrate and for practising ‘backward religions’. Why is it that a self-defined ‘liberal’ and ‘tolerant’ society demands conformity, compulsion and introduces seemingly undemocratic sanctions towards immigrants in a move towards assimilationism? These issues are analysed by providing an overview of modes of incorporation of immigrants in the Netherlands and it presents evidence on the socio-economic situation of immigrants. The article argues that patterns of disadvantage cannot be explained solely by the low human capital attributes of the original immigrants. In spite of multiculturalism, the causes have to be sought in pervasive institutional discrimination and the persistence of a culture of racism. The study argues that a shift to assimilation is more likely to create further societal divisions.