Neighborhood Latino ethnic concentration, above and beyond or in combination with mothers' and fathers' ethnic socialization, may have beneficial implications for minority adolescents' ethnic attitude and identity development. These hypotheses, along with two competing hypotheses, were tested prospectively (from x¯age = 12.79–15.83 years) in a sample of 733 Mexican‐origin adolescents. Neighborhood ethnic concentration had beneficial implications for ethnic identity processes (i.e., ethnic exploration and perceived peer discrimination) but not for ethnic attitudes. For Mexico‐born adolescents, high maternal ethnic socialization compensated for living in neighborhoods low on ethnic concentration. Findings are discussed vis‐à‐vis the ways in which they address major gaps in the neighborhood effects literature and the ethnic and racial identity development literature.