Studies have shown that individuals are better able to recognise the faces of people from their own race than the faces of people from other races. Although the so-called own-race effect has been generally regarded as an advantage in recognition memory, differences in the processing of the own-race versus other-race faces might also be found at the earlier stages of perceptual encoding. In this study, the perceptual basis of the own-race effect was investigated by generating a continuum of images by morphing an East Asian parent face with a Caucasian parent face. In a same/different discrimination task, East Asian and Caucasian participants judged whether the morph faces were physically identical to, or different from, their parent faces. The results revealed a significant race-of-participant by race-of-face interaction such that East Asian participants were better able to discriminate East Asian faces, whereas Caucasian participants were better able to discriminate Caucasian faces. These results indicate that an own-race advantage occurs at the encoding stage of face processing.