There is a general consensus that welfare states influence urban inequality patterns in cities experiencing increases in immigration. Whereas much of the existing research focused on the extent to which welfare states affect the well-being of immigrants after their admission, this study focuses on how immigration policy regimes affect the extent to which immigrant flows, and subsequent labour supply, match variations and fluctuations in the composition of demand in urban labour markets. In particular, the article develops a comparison between Malmo and Genoa, an Italian and a Swedish city with similar urban histories that display considerably different patterns of urban inequality. Immigration to Malmo was fuelled largely by humanitarian emergencies in the countries of origin and occurred in a period of economic decline for the city. The growth of the immigrant population was associated with a worsening of the labour market situation for immigrants and an increase in ethnic residential segregation. Immigration to Genoa was mainly driven by demand for cheap labour, particularly in the private-care sector. Therefore, the growth of the immigrant population was associated with an ethnic segmentation of the labour market, but it also resulted in a more dispersed distribution of immigrants than in Malmo. The differences in the urban inequality patterns in Malmo and Genoa can be only partly explained by policies affecting the living conditions of admitted immigrants. An important role has also been played by the immigration policy regimes of the two countries, which prescribed the integration potential of immigrant flows.