The developing world is witness to a major urban transformation. How to facilitate intergroup relations between new migrants and long-time urban residents is a critical issue in developing societies globally. The current research explored the effect of group boundary permeability on intergroup prejudice by the case of rural-to-urban migration in China. As the boundary between rural-to-urban migrants and permanent urban residents in China can be ascribed to China's unique hukou system, we conducted three interrelated studies to approach the topic from the perspective of the hukou system and its reforms. Study 1 used a correlational investigation and found a negative correlation between group boundary permeability and prejudice against rural-to-urban migrants. In Study 2, we manipulated the group boundary permeability using the points accumulation system scheme of the hukou system reform, and found a causal effect of the group boundary permeability on the social distance of urban dwellers to migrants. In Study 3, using a more general hukou reform scheme, that of gradually abolishing the hukou system, we replicated the findings from Study 2 and further found that a permeable group boundary could reduce prejudice. These three studies suggest that the group boundary based on the Chinese hukou system is an institutional cause of prejudice against rural-to-urban migrants. Our experimental manipulations can be interpreted as analogues to potential policy arena actions.