This article takes as its launching point a 2005 U. S. Supreme Court case, Johnson v. California (543 U.S. 499), which ruled that the California Department of Corrections' unwritten practice of racially segregating inmates in prison reception centers is to be reviewed under the highest level of constitutional review, strict scrutiny. Relying on observational data from two California prison reception centers, this research is grounded in an interactionist perspective and influenced by Smith's work on “institutional ethnography.” I examine how racialization occurs in carceral settings, arguing that officers and inmates collaborate to arrive at a “negotiated settlement” regarding housing decisions. They do so working together (but not always in agreement) to shape how an inmate is categorized in terms of ‘race’/ethnicity and gang/group affiliation, within a framework established by official Department of Corrections and Rehabilitation paperwork and related institutional understandings of housing needs. The findings demonstrate that administrators, officers, and inmates alike have influence over the process by which people are categorized and ‘race’ is produced, even as they derive their power from different sources and are both enabled and constrained by the relationship between them. I conclude that California prisons are, as Wacquant has put it, “the main machine for ‘race making’” (2005:128), and that the fuel for that machine—a series of patterned, negotiated settlements—happens in real time, “on the ground,” and with important consequences for inmates, officers, and administrators.