National surveys indicate that drug use among secondary school youth is once again on the rise, especially among inner-city youth, who seem disproportionately affected by the risks associated with drug use. Urban youth residing in public housing developments may be extremely vulnerable as a result of their great exposure to high rates of crime, unrelenting poverty, and drug use. This study examined a sample of youth living in housing developments and youth living in conventional housing. Correlates and predictors of alcohol and drug use included measures of cognitive efficacy, social influences, normative expectations, drug-refusal skills, family management, psychological distress, and alcohol-related expectancies. Overall, there were few significant mean differences in psychosocial functioning or drug behavior for the two groups. Hierarchical moderated multiple regression analyses indicated that public housing status buffered against the negative effects of high levels of perceived alcohol availability on drinking behavior, whereas youth living in conventional housing with high grades reported lower alcohol involvement. The article discusses findings in terms of their implications for developing effective prevention approaches targeting urban youth residing in public housing. Tables, figures, references