Although ethnicity data are collected in most countries at the population level, it has become more common to collect such data in healthcare settings, partially in response to growing health and social inequities worldwide. However, the implications of doing so have not been studied. This two-year study was designed to critically examine the implications of collecting ethnicity data in healthcare settings. Using a critical ethnographic approach, we interviewed 104 patients, community and healthcare leaders, and healthcare workers within diverse clinical contexts in a large city in Western Canada in 2006-2007. This paper presents an interpretive thematic analysis, using an ethical lens, of the harms and benefits associated with the process of data collection in a clinical context. While most leaders and healthcare workers and some patients envisioned potential benefits associated with having ethnicity data, these benefits were seen as largely contingent upon action being taken to ameliorate inequities. Overwhelmingly, however, leaders from ethno-cultural communities and patients of diverse identities anticipated potential harm arising both from having ethnicity data and the process of collection. The analysis illustrates that in today's sociopolitical context, collecting ethnicity data in clinical contexts may engender considerable harm, particularly for racialized, vulnerable patients. If ethnicity data are currently collected at the population level, evidence of benefit is required before proceeding to collect these data at the point of care.