Racial humor has long been a part of American culture, but its potential for varied interpretation leads to a wide range of possible effects, which have only recently become an area of investigation in psychological research. The literature on racial and disparaging humor, and particularly its conceptualization according to the “sword and shield metaphor” (Rappoport, 2005), points to 3 possibilities that vary in terms of intention and perception and have the potential to affect the outcomes associated with racial humor. When racial humor is antisocial in intention (i.e., used as a sword) and perceived as such, it may reinforce the social hierarchy and stereotypes about the individuals it targets, potentially loosening societal norms that discourage expressions of prejudice. When racial humor is prosocial in intention (i.e., used as a shield) and perceived as such, it may serve to challenge and protect against prejudice and create affiliation between members of groups who may be affected by social inequality. Finally, some prosocially motivated ethnic humor may be misperceived as antisocial, presenting the possibility of unintentionally (and ironically) reinforcing the status quo rather than subverting it. Despite this wide range of potential outcomes, we maintain that humor’s inherently social and ambiguous nature presents a hopeful opportunity for the discussion and possible reduction of prejudice—as long as the humor itself is embedded in a discussion that raises awareness of the issues it addresses. Equally important is the need for those who use such humor to understand its potential to be bad, good, or misunderstood.