Previous studies found lower substance use in schools achieving better examination and truancy results than expected, given their pupil populations (high value-added schools). This study examines whether these findings are replicated in West Scotland and whether school ethos indicators focussing on pupils' perceptions of schooling (environment, involvement, engagement and teacher–pupil relations) mediate the associations. Teenagers from forty-one schools (S2, aged 13,
n
= 2268; S4, aged 15,
n
= 2096) previously surveyed in primary school (aged 11,
n
= 2482) were surveyed in the late 1990s. School value-added scores were derived from standardised residuals of two regression equations separately predicting from pupils' socio-demographic characteristics (1) proportions of pupils passing five Scottish Standard Grade Examinations, and (2) half-day truancy loss. Outcomes were current smoking, monthly drinking, ever illicit drug use. Random effects logistic regression models adjusted for potential pupil-level confounders were used to assess (1) associations between substance use and school-level value-added scores and (2) whether these associations were mediated by pupils' perceptions of schooling or other school-level factors (school roll, religious denomination and mean aggregated school-level ethos scores). Against expectations, value-added education was positively associated with smoking (Odds Ratios [95% confidence intervals] for one standard deviation increase in value-added scores were 1.28 [1.02–1.61] in S2 and 1.13 [1.00–1.27] in S4) and positively but weakly and non-significantly associated with drinking and drug use. Engagement and positive teacher–pupil relations were strongly and negatively associated with all substance use outcomes at both ages. Other school-level factors appeared weakly and largely non-significantly related to substance use. Value-added scores were unrelated to school ethos measures and no ethos measure mediated associations between value-added education and substance use. We conclude that substance use in Scotland is more likely in high value-added schools, among disengaged students and those with poorer student–teacher relationships. Understanding the underpinning mechanisms is a potentially important public health concern.