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This article introduces a novel theoretical approach for understanding racial fluidity, emphasizing the social embeddedness of racial classifications. We propose that social ties affect racial perceptions through within-group micromechanisms, resulting in discrepancies between racial self-identifications and race as classified by others. We demonstrate this empirically on data from 12 Hungarian high school classes with one minority group (the Roma) using stochastic actor-oriented models for the analysis of social network panel data. We find strong evidence for social influence: individuals tend to accept their peers’ judgement about another student’s racial category; opinions of friends have a larger effect than those of nonfriends. Perceived social position also matters: those well-accepted among majority-race peers are likely to be classified as majority students themselves. We argue that similar analyses in other social contexts shall lead to a better understanding of race and interracial processes.