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Objective: Depression may be a precursor to substance use disorder in some youngsters, and substance abuse might complicate the subsequent course of depression. This study examined whether hypothalamic-pituitary-adrenal (HPA) activity and stressful life experiences are related to the development of substance use disorder in depressed and nondepressed adolescents, and whether substance use disorder predicts a worsening course of depression. Method: Urinary-free cortisol was measured for 3 nights in 151 adolescents with no prior history of substance use disorder (55 depressed, 48 at high risk for depression, and 48 normal subjects). Information was obtained on recent stressful life experiences. The participants were followed for up to 5 years to assess the onset of substance use disorder, course of depression, and stressful experiences. The relationships among depression, cortisol as a measure of HPA activity, stressful experiences, and substance use disorder were examined. Results: Elevated cortisol was associated with onset of substance use disorder. Stressful life experiences moderated this relationship. Cortisol and stress accounted for the effects of a history or risk of depression on the development of substance use disorder. Substance use disorder was associated with higher frequency of subsequent depressive episodes. Conclusions: Higher cortisol prior to the onset of substance use disorder may indicate vulnerability to substance use disorder. Stressful experiences increase the risk for substance use disorder in such vulnerable youth. The high prevalence of substance use disorders in depressed individuals may be explained, in part, by high levels of stress and increased HPA activity.