Background: The correlation between income inequality and life expectancy was demonstrated 10 years ago, but later, several studies suggested that the negative impact of a low economic income on the health status was disappearing. Aim: To assess the independent effects of community income inequality on self rated health in Chile. Material and methods: Multilevel analysis of the 2000 National Socio Economic Characterization Survey (CASEN) data from Chile. Individual level information included self rated health, age, sex, ethnicity, marital status, education, income, type of health insurance and residential setting (urban/rural). Community level variables included the Gini coefficient and median income. The main outcome measure was dichotomized self rated health (0 if excellent, very good or good; 1 if fair or poor). Results: 101,374 individuals (at level 1) aged 18 and above, nested within 285 communities (at level 2) and 13 regions (at level 3) were studied. Controlling for a range of individual level predictors, a significant gradient was observed between income and poor self rated health, with very poor most likely to report poor health (10.5%) followed by poor (9.5%) low (9%) middle (7%), high (6%) and very high (4.5%) income earners. Controlling for individual and community effects of income, a significant non linear effect of community income inequality was observed, with the most unequal communities being associated with approximately 5% higher likelihood of reporting poor health compared to the most equal communities. Conclusions: Individual income does not explain any of the between community differences and neither does it wash the significant effects of income inequality on poor self rated health. The contextual effect of inequality is almost as large as the differential observed in poor health comparing the very poor to the very rich individual income categories (Rev Méd Chile 2003; 131: 321-30).