We report the results of the relationship of lifetime and past year drug involvement to psychosocial functioning among youths entering a Juvenile Arbitration Program (a diversion program) in the 13th Judicial Circuit, who enrolled in a Center for Substance Abuse Treatment funded study. The project is a clinical trial evaluating an innovative intervention service providing sixteen weeks of intensive case management services to youths and their families. The present study examines baseline interview data for 165 youths who entered the Juvenile Arbitration Program between June 2002 and July 2003 and agreed to participate in the project. The results indicate that drug involvement is a significant issue among the youths we studied, and is related to functioning problems in a number of key areas of their lives. Indeed, the greater their drug involvement, the more psychosocial problems they report experiencing. These findings contradict public opinion that youths placed in diversion programs have relatively few problems. Policy implications based on these results are discussed.