This study investigated cultural identity and peer influence on tobacco, alcohol, and cannabis use in a culturally diverse sample of Northern Australian adolescents. Middle school students (n = 274) completed the Multigroup Ethnic Identity Measure (MEIM) and measures of their own and perceived friends' substance use. Higher scores on the full scale MEIM indicating stronger cultural identity were found to be independently protective of Indigenous and Non-Indigenous alcohol initiation. More friends using substances was associated with increased substance use risk for both cultural groups. A factor analysis of the MEIM identified a two-factor structure, consisting of Affirmation/Belonging and Participation/Exploration. Few significant associations were found between the MEIM factors and cultural group substance use. Interactions between the MEIM factors and friends' substance use indicated the two factors acted in the same way and decreased Non-Indigenous alcohol initiation for up to four drinking friends but were associated with risk for Indigenous alcohol initiation with any number of drinking friends. (Contains 7 tables and 1 figure.)