The association between affiliating with aggressive peers and behavioral, social and psychological adjustment was examined. Students initially in 3rd, 4th, and 5th grade (N = 427) were followed biannually through 7th grade. Students' peer-nominated groups were identified. Multilevel modeling was used to examine the independent contributions of adolescents' typical peer context (between-person effect) and changes in peer context (within-person effects) to adolescents' adjustment. Typically affiliating with aggressive groups and affiliating with more aggressive groups than usual predicted higher aggression for all youth. Typically affiliating with aggressive groups predicted negative adjustment (lower social preference and self-worth, higher victimization) for girls but neutral or positive adjustment for boys. Although typical peer context was consistently associated with adjustment, changes in peer context predicted small changes in adjustment for several outcomes. Results underscored the need to adopt a more differentiated picture of adolescents' dynamic peer context and its association with normative development. (Contains 4 figures and 3 tables.)