I provide evidence that the degree to which medieval Hindus and Muslims could provide complementary, non-replicable services and a mechanism to share the gains from exchange has resulted in a sustained legacy of ethnic tolerance in South Asian towns. Due to Muslim-specific advantages in Indian Ocean shipping, inter-ethnic complementarities were strongest in medieval trading ports, leading to the development of institutional mechanisms that further supported inter-ethnic exchange. Using novel town-level data spanning South Asia’s medieval and colonial history, I find that medieval trading ports, despite being more ethnically mixed, were five times less prone to Hindu-Muslim riots between 1850-1950, two centuries after Europeans disrupted Muslim overseas trade dominance. I provide case and representative household survey evidence that these differences were transmitted via the persistence of institutions that emerged to support inter-ethnic medieval trade and continue to influence contemporary occupational choices, trust and organizations.