Nonengaged youth (NEY) are those who have neither been working nor studying for a prolonged period of time. They are at risk of psychoactive substance use, but relevant studies are scarce. Based on a population-based telephone survey and referrals, we anonymously interviewed 479 Hong Kong Chinese NEY aged 15–24 years. Of them, 14.8–23.7% reported moderate to severe depression, anxiety, and stress. Moreover, one fourth of the participants (24.8%; n = 119) had used psychoactive substances. Adjusted analyses showed that these three psychological distress variables were positively associated with, while resilience was negatively associated with, both ever-use of psychoactive substances and intention to use such substances in the next 12 months. Loneliness was associated only with intention to use psychoactive substances. The mediating role of psychological distress was shown: Anxiety significantly mediated the association between resilience and ever-use of psychoactive substances, whereas depression mediated that between resilience and behavioural intention. Resilience was not a significant moderator on the relationship between psychological distress and ever-use of psychoactive substance use or behavioural intention to use those substances. The findings suggest that anti-drug interventions should outreach NEY and should include mental health support as well as building up resilience, as NEY are prone to psychological distress that increases risk of substance use.