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Using 68 work groups, including the group leader, this study explores the relationships among demographic diversity, evaluations of group performance, and leaders' self-perceived efficacy. Results show an indirect effect on leaders' self efficacy, mediated by leaders' estimation of group performance levels. Group heterogeneity is associated with more negative group performance, with a resultant decline in the leaders' self efficacy. In addition to this indirect effect, group heterogeneity has a direct and independent effect on leaders' self efficacy. Both effects are greater for self efficacy in charismatic domains than in transactional aspects of leadership. Research and practical implications for diversity and leadership are discussed.