Previous research has noted that schools vary in substance use prevalence rates, but explanations for school differences have received little empirical attention. We assess variability across elementary schools (N = 36) in rates of early adolescent alcohol, cigarette, and marijuana use. Characteristics of neighborhoods and schools potentially related to school prevalence rates are examined, as well as whether these characteristics have independent effects or whether neighborhood characteristics are mediated by school characteristics. Neighborhood and school characteristics were measured using student, parent, and archival data. The findings show substantial variation across schools in substance use. Attributes of neighborhoods and schools are statistically significantly related to school rates of lifetime alcohol use, lifetime cigarette use, and current cigarette use. Contrary to expectations, lifetime alcohol and cigarette use rates are higher in schools located in neighborhoods having greater social advantages as indicated by the perceptions of residents and archival data. Neighborhood effects are expressed both directly and indirectly through school characteristics. The findings are discussed in light of contagion and social disorganization theories.