Research suggests that family religiousness may contribute to youth psychological functioning directly and also by protecting against socialization among peers who engage in externalizing behaviors such as substance use. However, attachment variables and their causes may confound the effects between family religiousness, peer substance use, and youth psychological functioning. This study brings family idealization, a novel construct theorized to translate sensitive caregiving into the formation of secure attachments, to bear on this possibility for the first time. We performed a secondary analysis of data from a sample of 522 secondary students and used structural equations modeling to simultaneously estimate the effects between family religiousness and idealization, peer substance use, and psychological functioning. We found that family religiousness and youth psychological functioning were statistically independent conditional on family idealization. Family idealization was independent of peer substance use, while family religiousness predicted lower levels of socially acceptable substance use among peers. Interestingly, peer substance use did not predict psychological functioning. These results suggest family religiousness may impact peer selection, while its association with youth psychological functioning may be attributable to family idealization.