PURPOSE: Psychotic disorders, which are associated with substantially increased morbidity and mortality, are up to five times more common in some ethnic minority groups compared with the white majority in Western countries. This long-standing and well-replicated public mental health disparity has hitherto largely eluded adequate explanation. We argue that this might have arisen in part due to the lack of attention given to theoretical work characterising the complex and multidimensional social nature of ethnicity by those epidemiological investigations that have dominated the literature. METHODS: To bridge this gap, we draw on theoretical and empirical literature from across the social sciences considering the ontological significance of ethnicity (as biology, migration, racialised structures and identity) and its relationships with psychotic disorders to illuminate probable drivers of excess psychosis risk. RESULTS: The largest gains in our theoretical understanding of excess psychosis risk among ethnic minority groups are to be made by considering ethnicity in relation to disempowerment resulting from structural and identity-based exclusion. The former is readily studied through the social gradient in health: socioeconomic disadvantage clusters in some ethnic minorities and increases the risk of poor health outcomes, including psychosis. Furthermore, limitations on identity acquisition and expression imposed by the ethnic majority can further contribute to alienate ethnic minorities and increase psychosocial disempowerment (a lack of control over one's life). CONCLUSION: We theorise that structural and identity-based exclusion act as the primary drivers shaping variation in rates of psychotic disorder by ethnic minority status.