Extensive research has demonstrated that neighbourhood ethnic diversity is negatively associated with intra-neighbourhood social capital. This study explores the role of segregation and integration in this relationship. To do so it applies three-level hierarchical linear models to two sets of data from across Great Britain and within London, and examines how segregation across the wider-community in which a neighbourhood is nested impacts trust amongst neighbours. This study replicates the increasingly ubiquitous finding that neighbourhood diversity is negatively associated with neighbour-trust. However, we demonstrate that this relationship is highly dependent on the level of segregation across the wider-community in which a neighbourhood is nested. Increasing neighbourhood diversity only negatively impacts neighbour-trust when nested in more segregated wider-communities. Individuals living in diverse neighbourhoods nested within integrated wider-communities experience no trust-penalty. These findings show that segregation plays a critical role in the neighbourhood diversity/trust relationship, and that its absence from the literature biases our understanding of how ethnic diversity affects social cohesion.