In this article, we tested a series of Item Response Theory (IRT) models to examine the individual and neighborhood variation in perceived risk along dimensions of substance use (alcohol, marijuana, and hard drugs) and usage patterns (light/experimental use, moderate use, heavy/regular use). Data were gathered from 2266 adolescents aged 9, 12, and 15 residing in 79 Chicago neighborhoods. Developmental patterns for age and amount of use were observed whereby older respondents rated alcohol and marijuana as less harmful compared to the younger respondents, but rated hard drugs as more harmful. Risk perceptions were found to be more closely tied to one's direct experience with drugs rather than a general constellation of beliefs. Neighborhood variation in risk perceptions was also observed for hard drugs and three patterns of use, controlling for characteristics of individual residents. Neighborhoods did not vary in risk perceptions toward alcohol use. Individual-level factors rather than characteristics of the neighborhoods explained the observed neighborhood variation in perceptions toward marijuana use. These findings illustrate the complex links between individual and contextual factors in the development of beliefs about the health risks associated with substance use.