This study aims to investigate how the practice of tasamuh (an Arabic word that literally means tolerance) in Indonesian pesantren (Islamic boarding school) is employed as a method to teach cultural diversity to the students. This strategy is essential seeing as it employs religious teachings, which significantly influence Muslims as the majority in the country. Recently, pesantren has been accused of being a radical and intolerant Islamic educational institution due to the involvement of several of its activists in various religious and ethnical conflicts in the archipelago. However, via tasamuh practice, pesantren Assalaam have transformed into advocates in support of the development of multicultural education. Based on a qualitative method, this study interviewed a leader and principal as well as teachers. Besides the interviews, a questionnaire was distributed to the students in pesantren Assalaam, Central Java, Indonesia, in order to examine the practice of tasamuh with the focus on understanding SARA (Suku, Agama, Ras, dan Antar golongan or Ethnicity, Religion, Race and Social groups) diversity. Understanding SARA diversity is the key to maintaining a harmonious life and the coexistence of Indonesian cultural differences. Furthermore, it should be mentioned that this research also observed the learning activities in pesantren Assalaam. The results revealed that pesantren Assalaam implements tasamuh practice to create students who understand and uphold religious tolerance, respect various ethnicities and appreciate many sorts of local cultures. The process of implementing tasamuh is imparted in the formal and informal learning activities. Formal learning is taught in the classroom as theory inserted in national and pesantren subjects, whilst informal learning is adapted via direct experience in daily activity programmes both on and off campus. To further improve cultural diversity education in pesantren through tasamuh practice, certain challenges generated by the data must be addressed, such as the inconsistent teaching position of the teachers, avoiding religious truth-claim, the lack of in-service training for the teachers, in addition to the need to design adequate syllabi.