  A calculation of the leading isospin-breaking contributions to the B -> K^*
gamma decay amplitudes based on the QCD factorization approach is presented.
They arise at order Lambda/m_b in the heavy-quark expansion and are due to
annihilation contributions from 4-quark operators, the chromo-magnetic dipole
operator, and charm penguins. In the Standard Model the decay rate for B^0 ->
K^{*0} gamma is predicted to be about 10-20 % larger than that for B^- ->
K^{*-} gamma. Isospin-breaking effects are a sensitive probe of the penguin
sector of the effective weak Hamiltonian. New Physics models in which the
hierarchy of B -> K^* gamma decay rates is either flipped or greatly enhanced
could be ruled out with more precise data.
