Racial prejudice is said to influence strongly the locational decisions of households in urban areas. This paper introduces racial prejudice into a model of an urban area and derives several results about residential location. A previously developed long-run model of an urban area adds a locational dimension to a model of the housing market under perfect competition. The solution to such a model is a set of prices and quantities that, in addition to satisfying the usual profit and utility maximization conditions, ensures that no firm or household will have an incentive to change its location. The main theoretical contribution of these models is therefore a locational equilibrium condition, which is the price per unit of housing services, expressed as a function of location, that ensures that no one will have an incentive to move. The paper examines the demand side of this type of model in some detail and shows how a simple formulation of racial prejudice affects the locational equilibrium condition. In particular, housing price functions are derived that lead to locational equilibrium for prejudiced whites and for prejudiced blacks. These functions are combined to obtain a condition for racial equilibrium such that neither blacks nor whites will have an incentive to move. (Author/JM)