This study aimed to test whether (a) discrimination is associated with past 30-day/current alcohol, cigarette, e-cigarette, alcohol, marijuana, and other illicit drug use among Black and White U.S. adults aged 18-28, (b) psychological distress (PD) and positive well-being (PW) are mediators of the discrimination-substance use relationships, and (c) the associations are moderated by race and sex. Using data from a 2017 U.S. nationally representative survey we conducted multiple-group moderated mediation analyses among 2,192 young adults aged 18-28 (508 Black males, 594 Black females, 533 White males, 557 White females). Black males had higher discrimination, Whites had higher PW, and females had higher PD scores. Discrimination was positively associated with PD and negatively associated with PW. Among all groups, discrimination was positively associated with other illicit drug (direct and indirect), and marijuana use through PD. Indirect effects were stronger among White males for other illicit drugs and Black males for marijuana. The indirect effect of discrimination and alcohol use through PW was positive for Black females and negative for all other groups examined. Among Black males only, discrimination was positively associated with cigarette and alcohol use through PD (positive) and cigarette smoking through PW (negative). This study highlights the negative influence of perceived discrimination on current licit and illicit substance use among Black and White young adults. Our results suggest that this relationship may be partially mediated by PD and PW, especially among Black male young adults. Future discrimination and substance use studies should consider potential mediation effects of poor mental health and differences by race and sex. (PsycInfo Database Record (c) 2022 APA, all rights reserved).