Attitudes toward homosexuality have liberalized considerably, but these positive public opinions conceal the persistence of prejudice at an interpersonal level. We use interviews with heterosexual residents of Chicago gayborhoods—urban districts that offer ample opportunities for contact and thus precisely the setting in which we would least expect bias to appear—to analyze this new form of inequality. Our findings show four strategies that liberal‐minded straights use to manage the dilemmas they experience when they encounter their gay and lesbian neighbors on the streets: spatial entitlements, rhetorical moves, political absolution, and affect. Each expression captures the empirical variability of performative progressiveness, a concept that describes the co‐occurrence of progressive attitudes alongside homonegative actions. Our analyses have implications more broadly for how conflicting visions of diversity affect placemaking efforts; how residents with power and privilege redefine cultural enclaves in the city; and the mechanisms that undermine equality in a climate of increasing acceptance.