Why do states institutionalize discrimination? While the negative effects of discriminatory policies are well documented, their origins remain underexplored. I study Jim Crow in the American South, a blueprint for racial regimes worldwide. Using natural language processing tools on a novel dataset of Southern state legislation (1870–1920), I find that public goods—such as schools and churches—expanded in a segregated manner long before the adoption of statewide Jim Crow laws. Given segregation was already widespread, why did states undertake this major legislative effort years later? I argue that statewide Jim Crow laws emerged as a response by white agrarian elites to modernization in the “New South.” As economic development and urban growth drew Black workers away from farms, formal segregation became increasingly valuable to local elites who had historically relied on coerced labor. Using original roll call data on statewide Jim Crow legislation and a shift-share design, I show that Black urbanization increased the likelihood of county politicians voting for Jim Crow bills—but only in counties with a strong history of enslavement. I find no evidence for alternative explanations: there was little to no bottom-up backlash to Black urbanization—measured through lynching or Democratic Party voting—and the data is not consistent with traditional explanations, such as the Populist electoral threat, the effect of disenfranchisement, or the Supreme Court’s sanctioning of segregation in Plessy v. Ferguson. This critical period in U.S. history reveals how modernization can entrench, rather than erode, racial orders, offering new insights into the origins of institutional discrimination.