Abstract. We examine the contribution of differences in school environments to the gap in education outcomes between Aboriginal and non-Aboriginal students. We find both substantial school-level segregation of Aboriginal and non-Aboriginal students and a substantial gap in test scores. Conventional achievement gap decompositions attribute roughly half of the grade 7 test score gap to between-school differences and half to within-school differences. The segregation of Aboriginal students suggests that peer effects might explain some of these between-school achievement differences. However, we find that peer effects associated with a greater proportion of Aboriginal peers, if anything, improve value-added exam outcomes of Aboriginal students.