Applying multilevel analyses to a sample of the Belgian Census (110,208 individuals in 130 municipalities and districts), we study neighbourhood effects on ethnic educational inequality, comparing the Italian, Moroccan, and Turkish second generation with the Belgian majority. Severe ethnic penalties on the completion of upper secondary and tertiary education are largely explained by ethnic differences in family resources. In addition to individual- and household-level predictors in 1991, our analyses of educational attainment, as assessed retrospectively in 2001, focus on ethnic density and co-ethnic resources as neighbourhood-level predictors in 1991. Neighbourhood resources are measured by general and co-ethnic levels of education and housing wealth in one’s municipality or district. Combining migration research on the role of ethnic communities with research on neighbourhood effects, we argue that co-ethnic (relative to general) neighbourhood resources will most effectively support second-generation attainment. Indeed, positive effects of neighbourhood ethnic density and the share of university-educated co-ethnics on attainment account for residual ethnic penalties after taking into account family resources, particularly among the Turkish second generation. Our findings point to the up- and downsides of ethnic residential concentration for second-generation attainment, depending on the presence or absence of co-ethnic neighbourhood resources.