Caste persists as an important socio-psychological phenomenon in many spheres of Indian social life and particularly within village contexts. It is argued that socio-psychological insights into caste identity and caste-based stigma may complement ongoing sociological and anthropological research into caste. Drawing upon identity process theory, this article explores the possible functions performed by caste-based stigma both for the higher caste groups (HCGs) and the ‘Scheduled Caste’ (SC) groups. It examines how the maintenance of the social hierarchy implicated in the caste system, the spatial and endogamous separation of caste groups and the historical division of labour in accordance with caste group affiliation, may impinge upon identity processes among both groups. It is argued that caste group affiliation and caste-based stigma have differential and sometimes conflicting implications for identity processes among the HCGs and SCs. While negative social representations of the SCs may threaten self-esteem among SC members, it may enhance the self-esteem, meaning and distinctiveness principles among the HCGs. The systematic positioning of the caste ingroup and outgroups within the social matrix may enhance meaning and distinctiveness among both the HCGs and SCs. This article highlights a potential rationale underlying caste group members’ resistance to social change vis-à-vis caste, even among those who might be expected to benefit from such change. Some theoretical points are made in the form of testable hypotheses and methodological issues in caste-related research are considered.