News coverage of Islamic extremism is reigniting debates about the media's role in promoting prejudice toward Muslims. Psychological theories of media-induced prejudice date to the 1950's, and find support from controlled experiments. However, national-scale studies of media effects on Muslim prejudice are lacking. Orthogonal research investigating media-induced prejudice toward immigrants has failed to establish any link. Moreover, it has been found that people interpret the news in ways that confirm pre-existing attitudes, suggesting that media induced Muslim prejudice in liberal democracies is unlikely. Here, we test the association between news exposure and anti-Muslim prejudice in a diverse national sample from one of the world's most tolerant societies, where media effects are least likely to hold (N = 16,584, New Zealand). In support of media-induced Islamophobia, results show that greater news exposure is associated with both increased anger and reduced warmth toward Muslims. Additionally, the relationship between media exposure and anti-Muslim prejudice does not reliably vary with political ideology, supporting claims that it is widespread representations of Muslims in the news, rather than partisan media biases, that drives anti-Muslim prejudice.