Results of extensive density-functional studies provide direct evidence that Cr atoms in Cr:GaN have a strong tendency to form embedded clusters, occupying Ga sites. Significantly, for larger than 2-Cr-atom clusters, states containing antiferromagnetic coupling with net spin in the range 0.06-1.47 µB/Cr are favored. We propose a picture where various configurations coexist and the statistical distribution and associated magnetism will depend sensitively on the growth details. Such a view may elucidate many puzzling observations related to the structural and magnetic properties of III-N and other dilute semiconductors.