Across countries, common mental disorders are often more prevalent and/or more persistent among disadvantaged members (e.g., ethnic minorities) compared with advantaged group members. Although these disparities constitute a heavy challenge to national health organizations, there is little empirical evidence to help account for the mechanism underlying them. In this study, conducted in clinics across Israel, we investigated processes, rooted in the clinical encounter that may contribute to mental health disparities. We focused on the accuracy of diagnostic decisions, which are likely to substantially impact the client’s prognosis. Therapists’ diagnostic decisions following the initial intake with their client were compared with independent structured diagnostic interview of the client. Results revealed that therapists were twice as likely to misdiagnose mental illness when their client was a member of a disadvantaged (relative to advantaged) group. Implications for the quality of mental health services that members of disadvantaged groups receive are discussed