Youth substance use is an important social and health problem in the United States, Australia and other Western nations. Schools are recognized as important sites for prevention efforts and school substance use policies are a key component of health promotion in schools. The first part of this paper reviews the known status of school policies on tobacco, alcohol and other illicit drugs in a number of Western countries and the existing evidence for the effectiveness of school drug policy in preventing drug use. The review shows that most schools in developed countries have substance use policies but that there is substantial variation in the comprehensiveness of these policies (i.e. the breadth of people, places and times of day that are explicitly subject to policy prohibitions), and the orientation of their enforcement (e.g. punitive versus remedial), both across and within schools. The few studies of policy impact focus solely on tobacco policy and provide preliminary evidence that more comprehensive and strictly enforced school policies are associated with less smoking. The second part of the paper introduces the International Youth Development Study, a new longitudinal research project aimed at comparing school policies and the developmental course of youth drug use in the United States, where drug policies are abstinence-based, with Australia, which has adopted a harm minimization approach to drug policy.