The general population systematically overestimates the size of minority groups, yet how these misperceptions vary across racial groups and geographical scales remains poorly understood. Using a purpose-built survey of the U.S. population, we examine overestimation of people of color (PoC) communities across four nested geographical scales: neighborhood, city, state, and nation. Our results demonstrate that overestimation is both scale- and group-dependent: the probability of overestimation increases progressively from local to national levels, and people of color overestimate their own group size more frequently than white people do at both the neighborhood and national levels. Among white respondents, we identify a scale-dependent divide in exposure mechanisms: direct interethnic social contact is the primary correlate of overestimation at local levels, whereas perceived frequency of coverage of people of color in news dominates at the national level. Furthermore, across both groups, frequent news consumption is associated with reduced rates of overestimation, while frequent social media use is associated with higher rates. These findings suggest that overestimation is real and present across scales and groups. This in turn can foster an `illusion of diversity', potentially undermining support for equity-promoting policies by creating the erroneous belief that representation goals have already been achieved.