Ethnicity is used increasingly as a key variable to describe health data, and ethnic monitoring in the NHS will further stimulate this trend. We identify four fundamental problems with ethnicity in this type of research: the difficulties of measurement, the heterogeneity of the populations being studied, lack of clarity about the research purpose of the research, and ethnocentricity affecting the interpretation and use of data. Ethnicity needs to be used carefully to be a useful tool for health research. We make nine recommendations for future practice, one of which is that ethnicity and race should be recognised and treated as distinct concepts.