Experiences of racial discrimination have been demonstrated to be related to racial and ethnic disparities in mental and physical health and healthcare. There has been little study, however, of the relationship between racism and health in children, and few psychometrically valid and reliable instruments to measure Perceptions of Racism in Children and Youth (PRaCY) exist. This paper reports on the development and testing of such an instrument, the PRaCY. Development of the instrument began with open-ended qualitative interviews, from which a proto-questionnaire was created. The questionnaire gathered information on the prevalence, attribution, emotional responses, and coping responses to 23 situations identified by participants in the qualitative phase. The proto-questionnaire was administered to 277 children between the ages of 8 and 18 years (38% Latino/a, 31% African-American, 19% multiracial/multicultural, 7% West Indian/Caribbean, and 5% Other). Item analysis resulted in two developmentally appropriate 10-item instruments (one for ages 7-13, another for ages 14-18). Internal consistency reliability was strong (alpha = 0.78 for both versions of the instrument). Confirmatory factor analysis demonstrated good fit for both versions (younger-Comparative Fit Index (CFI): 0.967, Root Mean Square Error of Approximation (RMSEA): 0.047; older-CFI: 0.934, RMSEA: 0.056). Differential item functioning analyses demonstrated no group-specific biases in item response. PRaCY scores were appropriately associated with higher depressive symptom scores and elevated anxiety scores in the younger sample. Results indicate that the PRaCY is a valid and reliable instrument that measures perceptions of racism and discrimination in children and youth aged 8-18 from diverse racial/ethnic backgrounds.