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Although Indian Americans constitute the second-largest immigrant group in the United States, there is a paucity of information about Indian American youth, particularly with respect to substance use risk. We examined the relationship of social factors to permissive substance use beliefs (a proxy for substance use risk since they can lead to adulthood substance use and misuse) and family functioning. The study used structural equation modeling to examine the prevalence of permissive substance use beliefs in a sample of Indian American youth ages 12–17 (N = 223) and examined the degree to which discrimination, bicultural identity integration, and endorsement of the model minority stereotype were associated with permissive substance use beliefs. Findings suggest that bicultural identity integration (B = 0.267 [SE = 0.112], p = 0.01) and discrimination (B = 0.294 [SE = 0.087], p = 0.001) are positively associated with permissive substance use beliefs. Bicultural identity integration (B = 0.415 [SE = 0.090], p = 0.0001) was positively associated with family support (B= −0.329 [SE = 0.108], p = 0.002) which, in turn, was associated with less permissive substance use beliefs. In contrast, endorsement of the model minority stereotype (B = 0.351 [SE = 0.090], p = 0.001) was positively associated with family closeness (B = 0.232 [SE = 0.927], p = 0.01) which, in turn, was associated with family support and then with less permissive substance use beliefs. Discrimination and bicultural identity integration emerged as key constructs related to substance use risk among Indian American youth. These youth could benefit from culturally appropriate prevention programming that addresses the negative impact of discrimination and its effect on permissive substance use beliefs and highlights protective factors. [ABSTRACT FROM AUTHOR]