In this chapter, we discuss how immigration affects identity, with implications for politics. We build on key insights from social psychology and their formalization in economics to derive predictions about how immigration changes both self-identification and categorization of others into groups. These immigration-induced identity changes can explain two recent political transformations that have characterized many Western democracies: the rise of right-wing populism and the realignment of voters and parties along a socio-cultural, rather than economic, dimension of political conflict. We also discuss how immigration can reshape group boundaries and political cleavages, depending on the characteristics of immigrants, host populations, and the local context. We highlight open questions and possible directions for future research