Differences in school choice by race contribute to school segregation and unequal access to effective schools. Conditional on test score and district of residence, Black and Hispanic families consistently choose schools with fewer white and Asian students, lower average achievement, and lower value-added. This paper combines unique survey data and administrative data from New York City to identify the determinants of racial disparities in school choice and shows that attending a more diverse middle school can mitigate racial choice gaps. A post-application survey of guardians of high school applicants reveals that information gaps and homophily in school preferences explain cross-race differences in choice. In turn, instrumental variable estimates show that middle school students exposed to more diverse peers apply to and enroll in high schools that are also more diverse. These effects are consistent across racial groups, particularly benefiting Black and Hispanic students who enroll in higher value-added high schools. Notably, changes in application patterns due to exposure to diverse middle school peers appear driven by changes in the set of known school options and an increased preference for peer diversity.