This prospective longitudinal investigation examined the predictors of generation 2 (G2) parental substance use as related to their generation 3 (G3) offspring’s externalizing behavior. The sample comprised 281 mother– or father–child (G2/G3) pairs. The results indicated that the G1/G2 (generations 1 and 2) parent–child relationship during G2’s adolescence predicted externalizing behavior in the G2 young adults which correlated with G2 parental substance use. G2 parental substance use was related to subsequent G2 substance use disorders (SUDS), and to the G2/G3 parent–child relationship. The G2/G3 parent–child relationship and G2’s SUDS each predicted G3 externalizing behavior. The results highlight the significance of breaking the chain of transmission of externalizing behavior across generations. Implications for policy and programs addressing the etiology of externalizing behavior in the offspring are discussed within a developmental framework.