Social context is increasingly recognized as essential for understanding complex human outcomes even among geneticists who focus on genetic influences. These outcomes typically involve multiple genes, multiple environmental factors, and the interactions between the two. In this paper, we propose a conceptual framework for gene–environment interaction and show how the interaction can be tested empirically using a sample of MZ twin, DZ twins, and full siblings. We test the hypothesis that the genetic contribution to adolescent drinking depends on the drinking behavior of their friends, using a sample of clusters of siblings and their friends from Add Health. Our analysis has yielded evidence supporting the gene–environment interaction hypothesis. High levels of alcohol use by one’s best friend or among one’s friends tend to bring about higher levels of genetic contribution to alcohol use. Lower levels of alcohol use by one’s best friend or among one’s friends tend to suppress the level of genetic contribution to alcohol use. Our findings suggest that friend behavior might be a particularly important environmental moderator of the expression of genetic disposition for adolescent drug use, smoking, dietary habits, and risky sexual behavior. Subsequent studies of these behaviors that use non-DNA twin samples or DNA measures of genetic variants should investigate peer influence as a significant environmental moderator.