Education markets have spread worldwide over the past few decades. Frequently, the expansion of markets in education is presented by their promoters as a means to improve the opportunities of the most socioeconomically disadvantaged students. However, the evidence available shows that market-oriented policies that enhance competition and choice tend to produce negative effects on equity by boosting school segregation and social stratification among public and private schools. This paper aims to unpack the mechanisms through which market-oriented policies and the involvement of private actors in education can foster the uneven distribution of students from disadvantaged backgrounds. By using a mechanism-based explanation, this paper identifies and describes the functioning of three main mechanisms by which pro-market policies generate school segregation. Finally, the paper addresses the analytical benefits of the mechanism-based approach and reflects on its policy implications regarding market-oriented reforms in education.