Data were obtained as part of an ongoing prospective investigation of drug abuse etiology and prevention with inner- city minority youth. The public housing sample included 622 youths (169 Hispanics and 453 blacks; 42 percent male), while the conventional housing sample included 642 youths (90 Hispanics and 552 blacks; 46 percent male). Correlates and predictors of alcohol and drug use were based on measures of cognitive efficacy, social influences, normative expectations, drug refusal skills, family management, psychological distress, and alcohol-related expectancies. Overall, few significant mean differences were observed in psychosocial functioning or drug behavior for the two samples. Multiple regression analyses indicated public housing status buffered against the negative effects of high levels of perceived alcohol availability on drinking behavior, whereas youth who lived in conventional housing and who had high grades reported lower alcohol involvement. Study findings are discussed in terms of their implications for developing effective drug prevention approaches that target urban youth who reside in public housing developments. 38 references, 3 tables, and 1 figure