PURPOSE: Conduct problems and peer effects are among the strongest risk factors for adolescent substance use and problem use. However, it is unclear to what extent the effects of conduct problems and peer behavior interact, and whether adolescents' capacity to refuse the offer of substances may moderate such links. This study was conducted to examine relationships between conduct problems, close friends' substance use, and refusal assertiveness with adolescents' alcohol use problems, tobacco, and marijuana use. METHODS: We studied a population-based sample of 1,237 individuals from the Cardiff Study of All Wales and North West of England Twins aged 11-18 years. Adolescent and mother-reported information was obtained. Statistical analyses included cross-sectional and prospective logistic regression models and family-based permutations. RESULTS: Conduct problems and close friends' substance use were associated with increased adolescents' substance use, whereas refusal assertiveness was associated with lower use of cigarettes, alcohol, and marijuana. Peer substance use moderated the relationship between conduct problems and alcohol use problems, such that conduct problems were only related to increased risk for alcohol use problems in the presence of substance-using friends. This effect was found in both cross-sectional and prospective analyses and confirmed using the permutation approach. CONCLUSIONS: Reduced opportunities for interaction with alcohol-using peers may lower the risk of alcohol use problems in adolescents with conduct problems.