Past research documents the extent that discrimination experiences and observations can undermine people's health and performance. In addition to discrimination's direct consequence for targets, discrimination implicates the morality of the larger community where it occurs. Perceptions of community morality could predict community identification that, in turn, could predict health and performance. To test this serial mediation hypothesis, 615 second- and third-year university undergraduates reported the frequency of discrimination observations and experiences. Students' perceptions of the university community's morality mediated the relationship between discrimination and the extent that they identified with the university. In turn, university identification mediated the relationship between university morality and students' academic engagement and mental health. However, only university morality reliably mediated the relationship between discrimination and physical health. Discrimination can affect the health and engagement of all community members, even observers who are not part of the targeted group.