Ethnicity and nationality are two different concepts; while the term 'ethnicity' refers to membership of a social group with common national or cultural tradition, the term 'nationality' refers to membership of a nation or sovereign state.
That being said, there do exist some regions of the world wherein the nationality of an individual is determined on the basis of his ethnicity - instead of citizenship, and this in turn makes it all the more difficult for a layman to understand how these two concepts differ from each other.
In order to understand what the difference between ethnicity and nationality is, we need to get a better understanding of each of these two concepts individually.
Ethnicity refers to the membership of a group which is formed on the basis of common heritage, i.e. common language, common traditions, common religious beliefs, common food preferences etc. If the term ethnicity is used alike with the term nationality today, it is only because of the fact that it has been derived from the Greek word 'ethnos' meaning nation.
Examples of ethnic groups cover African Americans- the residents of America, who trace their origins to the Black population of Africa, Mongolians- the nomadic groups of Mongolia, Native Americans whose ancestors inhabited North and South American continents before the Europeans arrived, Zulus- the tall Negroid people hailing from eastern South Africa, etc.
Even though an individual may belong to a particular race, that doesn't stop him from having multiple ethnic affiliations. Unlike nationality - which is more often associated with political boundaries of the nation, ethnicity relies heavily on cultural attributes of the society.
Nationality can be defined as the relationship that a person shares with the nation that he comes from, and not the nation whose citizenship he has acquired as many people believe.
Citizenship of an individual can be determined on the basis of where he was born (jus soli i.e. right of the soil), the citizenship of his parents (jus sanguinis i.e. right of blood) and naturalization (i.e. the procedure by which an alien is granted citizenship of the said nation).
On the other hand, the person's nationality - in a true sense, can only be determined on the basis of his birthplace and/or the citizenship of parents. Simply put, if an Indian becomes the legal citizen of the United States, his citizenship will be American, but his nationality will be Indian.
When it comes to the concept of 'nationality', some of the most prominent examples include American from the United States of America, Indian from India, Afghan from Afghanistan, Brazilian from Brazil, Welsh from Wales, Poles from Poland, etc.
More importantly, people with different ethnic backgrounds can be citizens of a particular nation. For instance, African Americans and Native Americans both qualify to be referred to as Americans when they have the citizenship of the United States.
While the information on the difference between nationality and ethnicity given above speaks in volumes about how they differ from each other, there also exist a few more obvious differences between the two. While ethnicity happens to be more of a cultural concept, nationality is considered to be more of a legal concept.
Similarly, ethnicity is quite notorious for its association with the concept of racism. Nationality - on the other hand, is considered to be one of the driving factors when it comes to patriotism.
Though a single nation can be home to different ethnic groups, there also exist cases wherein a single ethnic group dominates the entire nation. (Nazi Germany, Islamic countries of Asia, etc., are good examples of the same.)