In this 2-year prospective study, psychopathology and competence among drug abusers' offspring were examined in relation to characteristics of their neighborhoods. The sample consisted of 77 children of cocaine and opioid addicts with a mean age of 12.3 years at baseline and 14.2 years at follow-up. Outcomes examined included psychiatric diagnoses, dimensional symptom indices, and aspects of everyday behavioral competence. Links involving neighborhood variables varied by gender, wherein boys reflected greater deterioration than girls when neighborhoods had high crime rates and high proportions of low-income households. Conversely, girls appeared to benefit more than boys from the presence of professional adults in the community. Overall, neighborhood indicators accounted for more variability in changes in child adjustment over time than did indices of maternal psychopathology. Findings are discussed in terms of developmental changes in the salience of exosystemic and familial forces, and implications for interventions are outlined.