Research suggests there is more inter-group discrimination when rewards rather than punishments are distributed between groups (the positive-negative asymmetry effect). This study investigated whether intra-group interaction and the obstruction of in-group advancement moderate this finding. Participants were twice asked to divide monetary resources—individually (pre-consensus) and in interactive groups (consensus). Results confirmed that there was more discrimination when rewards were allocated. Although this replicates the PNAE overall, there were two moderators. First, there was no asymmetry when the out-group obstructed in-group advancement: obstruction was sufficient to legitimise punishment. Second, after group interaction the PNAE reversed so that there was more discrimination when punishments were administered. The severity of discrimination was contingent upon group norms that endorsed inter-group hostility. It is argued that norms changed as a function of group interaction, and so did patterns of discrimination. The results suggest that the intra-and inter-group context combined to cause in-group favouritism to slide towards inter-group hostility.