The current investigation examined how homophobic and aggressive social climates of adolescent peer groups accounted for students' use of homophobic epithets and engagement in homophobic banter using multilevel modeling. Results indicated that aggressive peer group social climates accounted for increased use of epithets, over and above individuals' own reported bullying behavior. Furthermore, the homophobic social climate moderated individuals' engagement in homophobic banter, such that being called a homophobic epithet had a stronger predictive effect of calling other students these epithets for individuals in more homophobic peer groups. Findings support the need for research to study the way in which individuals' homophobic behavior can be accounted for based on their interactions with friends and the social processes occurring within their immediate environment. (Contains 1 figure and 2 tables.)