Moral disengagement is a social cognitive process that has been extensively applied to transgressive behaviors, including delinquency, aggression and illicit substance use. However, there has been limited research on moral disengagement as it relates to underage drinking. The current study aimed to examine moral disengagement contextualized to underage drinking and its longitudinal relationship to alcohol use. Moreover, the social context in which adolescent alcohol use typically occurs was also considered, with a specific emphasis on the social sanctions, or social outcomes, that adolescents anticipate receiving from friends for their alcohol use. Adolescents were assessed across three time-points, 8 months apart. The longitudinal sample consisted of 382 (46 % female) underage drinkers (12–16 years at T1). Parallel latent growth curve analysis was used to examine the bi-directional influence of initial moral disengagement, anticipated social outcomes, and alcohol use on subsequent growth in moral disengagement, anticipated social outcomes and alcohol use. The interrelation of initial scores and growth curves was also assessed. The findings revealed that, in the binary parallel analyses, initial moral disengagement and anticipated social outcomes both significantly predicted changes in alcohol use across time. Moreover, initial anticipated social outcomes predicted changes in moral disengagement. These findings were not consistently found when all three process analyses were included in a single model. The results emphasize the impact of social context on moral disengagement and suggest that by targeting adolescents’ propensity to justify or excuse their drinking, as well as the social outcomes adolescents anticipate for being drunk, it may be possible to reduce their underage drinking.