Racism is part of the foundation of U.S. society and institutions, yet few studies in community psychology or organizational studies have examined how racism affects organizations. This paper proposes a conceptual framework of institutional racism, which describes how, in spite of professional standards and ethics, racism functions within organizations to adversely affect the quality of services, the organizational climate, and staff job satisfaction and morale. Grounded in systems theory and organizational empowerment, the framework is based on data that describe how racism was made manifest in a county public health department. The findings highlight the importance of understanding how organizations are influenced by external forces and can negatively affect clients, communities, and their own staff members.