Ethnicity is commonly understood as a cultural identity derived through ancestry, and it gives an essential tone to our identity. This chapter explores a number of concepts and definitions; looks at various theories of ethnicity; and discusses the importance of ethnicity in Australian society by specifically focusing on issues of ethnic diversity in Australia and the question of migrant generations. It provides an insight into contemporary discussions on migrant generations. The chapter also provides a brief overview of the theories of ethnicity using a rather standard classification, dividing them into two main camps: primordialist and instrumentalist/constructivist approaches. Although there has been a decline in the proportion of European-born immigrants in recent years, accompanied by a rise in immigrants from Asian regions, such trends in ethnic diversification have not altered the overall dominance of the European-descended population.