Data from longitudinal studies of adolescents carried out over the last ten years are reviewed to provide an integrated and dynamic perspective on the nature of friendships and processes of peer influence in adolescent drug involvement, within a general developmental perspective. Four interrelated questions are examined: What individual attributes are especially important in the formation of friendships among adolescents? Which of two processes, selection or socialization, account for the similarity in values and behaviors observed in ongoing friendship dyads, and how important is similarity in friendship formation and dissolution? What is the nature of friends' influence as compared to parents', and in which domains of adolescent's life do these influences exert themselves? What mechanisms, role modeling or social learning, underlie processes of interpersonal influences? Relational dyadic and triadic samples of adolescents matched to a parent and/or a best friend and observed at one point in time as well as over time provide important and relatively rare sources of data on processes of interpersonal influence. Sociodemographic characteristics are the strongest determinants of friendship formation, with participation in illicit drugs following next in importance. Both selection (assortative pairing) and socialization contribute to observed similarity in friendship pairs. Adolescents coordinate their choice of friends and their values and behaviors, in particular the use of marijuana, so as to maximize congruency in the friendship dyad. If there is a state of unbalance such that the friend's attitude or behavior is inconsistent with the adolescent's, the adolescent will either break off the friendship and seek another friend or will keep the friend and modify his or her own behavior. Both parents and peers can have strong influences on adolescents, depending upon the arena of influence. Parents are especially important for future life plans, while peers are most important for involvement in illicit drug use. However, for drug use itself, there are different patterns of influence depending upon the stage of drug involvement. Peers are especially important for initiation into marijuana use, while parental factors gain in importance in the transition from marijuana use to the use of other illicit drugs. Interpersonal influences of peers on ongoing marijuana and alcohol use result from modeling and imitation more than from social reinforcement and the transmission of values.