This paper seeks to make a theoretical and empirical case for the importance of differentiated identities for group function. Research on groups has found that groups sometimes perform better and other times perform worse than the sum of their individual members. Differentiation of selves is a crucial moderator. We propose a heuristic framework that divides formation of work or task groups into two steps. One step emphasizes shared common identity and promotes emotional bonds. In the other step, which we emphasize, group members take increasingly differentiated roles that improve performance through specialization, moral responsibility, and efficiency. Pathologies of groups (e.g., social loafing, depletion of shared resources/commons dilemmas, failure to pool information, groupthink) are linked to submerging the individual self in the group. These pathologies are decreased when selves are differentiated, such as by individual rewards, individual competition, accountability, responsibility, and public identification. Differentiating individual selves contributes to many of the best outcomes of groups, such as with social facilitation, wisdom-of-crowds effects, and division of labor. Anonymous confidentiality may hamper differentiation by allowing people to blend into the group (so that selfish or lazy efforts are not punished), but it may also facilitate differentiation by enabling people to think and judge without pressure to conform. Acquiring a unique role within the group can promote belongingness by making oneself irreplaceable.