Two pre-registered experiments (Total N = 822) explored the effect of economic inequality on social class stereotyping and the social mechanisms driving this relationship. In both experiments, participants were randomly assigned to a fictitious society with high or low levels of inequality and rated a wealthy and a poor individual on Vertical (i.e., assertiveness and competence) and Horizontal stereotype dimensions (i.e., friendliness and morality). We found that higher (versus lower) inequality caused both social classes to be perceived as more incompetent, immoral, and unfriendly, and the poor to be perceived as more unassertive. Moreover, we found that high (versus low) inequality caused stereotypes of the wealthy and poor to be more different on unique dimensions (i.e., in relation to the poor, the wealthy were stereotyped as more assertive, but also more unfriendly and immoral). Importantly, inequality affected the stereotype dimensions through distinct mechanisms. We found evidence of class-based categorization mediating the effect of inequality and social class stereotypes on the Vertical dimension, and evidence of negative intergroup relations (i.e., increased competition and reduced trust) explaining stereotypes on the Horizontal dimension. Further, we found that social class stereotypes influenced support for redistributive wealth policies. Our work contributes to the literature by identifying the mechanisms through which inequality affects perceptions of the social classes. •High (versus low) inequality causes more negative social class stereotyping.•High (versus low) inequality causes more distinctive social class stereotyping.•Economic inequality affects stereotype dimensions through distinct mechanisms.•Social class stereotypes influence support for redistributive wealth policies.