Although studies have focused on intergroup biases (e.g., discrimination) during the COVID-19 pandemic, little is known about the underlying mechanisms driving intergroup bias, specifically social categorization. In-depth interviews were conducted among 32 residents of Wuhan, P.R. China, during and after the initial COVID-19 lockdown (Jan-July, 2020). Interpretative phenomenological analysis (IPA) was applied to describe perceived prejudice and discrimination and the intergroup interaction processes. Results indicated that: (1) Wuhan residents’ interpretations of perceived prejudice and discrimination evolved over time, especially regarding views of the pandemic prevention measures; (2) intergroup contact, emotional factors and cognitive factors influenced individuals’ perceptions of prejudice and discrimination; (3) social categorization and integration processes underwent changes across different stages of the COVID-19 pandemic in Wuhan, encompassing the lockdown and reopening; (4) the group identity of recovered COVID-19 patients was easily solidified; (5) in the group integration process, emphasizing common attributes between groups, individualized media coverage and positive aspects of intergroup interactions weakened intergroup boundaries and promoted group integration. These results enrich existing knowledge about perceived discrimination and social categorization processes of a suddenly marginalized group through qualitative research methods.