There is considerable debate regarding the extent to which punitive parenting adversely impacts youth well-being. Using an ecological-transactional model of human development, we examined reciprocity and contextual variability in associations between maternal punitive discipline and adolescent adjustment among 1,147 low-income, urban youth followed through adolescence. Longitudinal structural equation modeling results indicated that delinquency and depressive symptoms during pre- and early adolescence (Time 1) were associated with increased punitive discipline about a year later (Time 2). When mothers reported less Time 2 neighborhood disorder, punitive discipline at Time 2 was associated with increased delinquency (for boys) and depressive symptoms (for girls) during mid- to late adolescence (Time 3). The costs of punitive discipline for adolescent adjustment are best understood considering the dynamic, transactional, and contextual nature of development. (Contains 5 figures and 1 table.)