Background. Social scientists have suggested that cultural diversity in a nation leads to societal instability. However, societal instability may be affected not only by within-nation or alpha diversity, but also diversity between a nation and its neighbours or beta diversity. It is also necessary to distinguish different domains of diversity, namely linguistic, ethnic and religious, and to distinguish between the direct effects of diversity on societal instability, and effects that are mediated by economic conditions. Methodology/Principal Findings. We assembled a large cross-national dataset with information on alpha and beta cultural diversity, economic conditions, and indices of societal instability. Structural equation modeling was used to evaluate the direct and indirect effects of cultural diversity on economics and societal stability. Results show that different types and domains of diversity have interacting effects. As previously documented, linguistic alpha diversity has a negative effect on economic performance, and we show that it is largely through this economic mechanism that it affects societal instability. For beta diversity, the higher the linguistic diversity among nations in a region, the less stable the nation. But, religious beta diversity has the opposite effect, reducing instability, particularly in the presence of high linguistic diversity. Conclusions. Within-nation linguistic diversity is associated with reduced economic performance, which, in turn, increases societal instability. Nations which differ linguistically from their neighbors are also less stable. However, religious diversity between neighboring nations has the opposite effect, decreasing societal instability.