In light of the current Rohingya crisis in Myanmar, this article investigates the emergence of Islamophobia in colonial Burma. Focusing on the under-examined Islamophobic riots that broke out countrywide in 1938, my research reveals that a nascent fascist movement used Muslims as a scapegoat for political and economic crisis. The colonial agribusiness economy had collapsed during the Great Depression, while the vast contract labour system of the Indian Ocean had brought millions of low-wage Indian migrants to Burma, causing a glut in the labour market. Burmese socialism provided a popular response to these issues. To compete, Burmese fascism emerged to appeal to a rising sense of nationalism, racially scapegoating Indians and the religion of Islam as the exploiters, colonizers, and invaders behind Burma's problems. Using the racialized term kala to conflate the ideas of colonizer, Indian, and Muslim, Burmese fascists inflamed hatred against Indian Muslims, Indian Hindus, and even indigenous Muslims, such as the Rohingya. By revealing the origins of this racialization, this article both deconstructs the lasting Burmese perception of the Rohingya as ‘Bengali immigrants’ and provides a generalizable case study into how races and racisms develop from specific historical factors and political movements. It also argues that the British amplified fascist ideas in Burma by focusing repression on movements that directly challenged their material control, such as socialism and communism. Therefore, it highlights how ruling classes often prefer nationalistic movements because they redirect popular unrest from the project of overthrowing structural factors to that of eliminating scapegoated minorities.