Adolescence is a period of heightened susceptibility to peer influences, and deviant peer affiliation has well-established implications for the development of psychopathology. However, little is known about the role of brain functions in pathways connecting peer contexts and health risk behaviors. We tested developmental cascade models to evaluate contributions of adolescent risk taking, peer influences, and neurobehavioral variables of risk processing and cognitive control to substance use among 167 adolescents who were assessed annually for four years. Risk taking at Time 1 was related to substance use at Time 4 indirectly through peer substance use at Time 2 and insular activation during risk processing at Time 3. Furthermore, neural cognitive control moderated these effects. Greater insular activation during risk processing was related to higher substance use for those with greater medial prefrontal cortex activation during cognitive control, but it was related to lower substance use among those with lower medial prefrontal cortex activation during cognitive control. Neural processes related to risk processing and cognitive control play a crucial role in the processes linking risk taking, peer substance use, and adolescents’ own substance use.