Migrants struggle to be perceived as deserving to settle and access the welfare state. Yet, why are migrants perceived as more deserving in some Western European countries than in others? Previous research on the relationship between welfare policies and migrants' perceived deservingness has produced conflicting findings. While more generous welfare regimes are often associated with higher levels of social solidarity, this solidarity does not always extend to migrants. For instance, welfare chauvinistic attitudes and policies are prevalent even in some of the most generous welfare states, such as Denmark. In this paper, I put forward the institutional interaction hypothesis, which argues that the relationship between welfare policies and migrants' perceived deservingness depends on a third variable: a country’s approach to cultural diversity and migrant incorporation. Using European Social Survey (ESS) data from 16 Western European countries spanning from 2002–2020, along with indices on multiculturalism policies (MCP Index and IMPIC Index) and welfare generosity (Comparative Welfare Entitlement Dataset), I test this hypothesis with a series of multilevel models. The findings show that in countries with generous welfare policies, higher levels of multiculturalism policies are associated with higher levels of migrants' perceived settlement and welfare deservingness. This paper makes two key contributions: First, it advances a new framework theorizing links between institutional contexts and deservingness perceptions. Second, it contributes to debates on migration and the welfare state by showing that generous welfare policies can sustain public support for migrants' social rights when paired with inclusive approaches to ethnic diversity and migration.