The complicated interconnection between ethnicity and national identity is undeniably a significant socio-political issue nowadays. The modern concept of nation and the recent trend of democratization render more room for the recognition of the individual as opposed to the hegemonic whole, which thus justifies the foregrounding of ethnic identity recognition and ethic equality. Taiwan’s history proves that democratization and legal policy making implicate ethnicity, as the rights of ethnic groups have never failed to attract attention. This paper discusses the significance of ethnic equality in Taiwan’s policy formation. By reviewing the meanings of fundamental concepts such as race, tribe, nation, indigenous peoples, minority, inter-ethnic group relationship, assimilation, self-determination and multiculturalism, the paper attempts to outline the major features of Taiwan’s ethnic policy development and to examine how far Taiwan’s ethnic policy has approximated the ideal of ethnic equality.