We set out to explore the influence of environment on ethnic inequalities in health. Studies exploring the relationship between environment and health have tended to ignore the role of ethnicity, and the health impact of the residential concentration of ethnic minority groups in disadvantaged areas. Those that have explored the role of ethnicity tend to focus on the way in which residential concentration may promote a sense of community among ethnic minority groups, and, consequently, may be protective of health (the 'ethnic density effect'). Again, they have tended to ignore the health impact of the concentration of ethnic minority groups in areas of social and economic disadvantage. We undertook a factor analysis to determine aspects of perception of 'quality' of the local environment, followed by multi-level analyses to explore the relationship between self-reported fair or poor health and individual- and ward-level characteristics among four ethnic groups (Caribbean, Indian, Pakistani and Bangladeshi, and white) in the UK. Results of the factor analysis suggested three underlying dimensions of perception of quality of the local area, related to the quality of the local environment, the provision of local amenities and local problems of crime and nuisance. These factors were entered into the multi-level models at level 2, along with indicators of ward-level ethnic density and Townsend's deprivation score, with age, gender and household social class entered at level 1. In general, there was a residual random ward-level effect suggesting an area influence on self-assessed health. However, on the whole, none of the ward-level indicators showed any statistically significant association with self-assessed health, making it difficult to precisely determine the mechanisms operating. These findings suggest, though, that there is no ethnic density effect on self-assessed health for ethnic minority groups.