Although subgroups are a widely studied component of work teams, much of the literature on subgroups has remained loosely connected and key questions remain unanswered. We integrate research on faultlines, diversity, and intergroup processes to develop a theory composed of a typology of subgroups and a depiction of the formation, processes, and outcomes associated with subgroups. The key insight from our theory is that subgroups are characterized by three underlying factors: identity, resources, and knowledge. © 2012 Academy of Management Review.