Background Students with early‐starting conduct problems often do poorly in school; they are disproportionately placed in restrictive educational placements outside of mainstream classrooms. Although intended to benefit students, research suggests that restrictive placements may exacerbate the maladjustment of youth with conduct problems. Mixed findings, small samples, and flawed designs limit the utility of existing research. Methods This study examined the impact of restrictive educational placements on three adolescent outcomes (high school noncompletion, conduct disorder, depressive symptoms) in a sample of 861 students with early‐starting conduct problems followed longitudinally from kindergarten (age 5–6). Causal modeling with propensity scores was used to adjust for confounding factors associated with restrictive placements. Analyses explored the timing of placement (elementary vs. secondary school) and moderation of impact by initial problem severity. Results Restrictive educational placement in secondary school (but not in elementary school) was iatrogenic, increasing the risk of high school noncompletion and the severity of adolescent conduct disorder. Negative effects were amplified for students with conduct problem behavior with less cognitive impairment. Conclusions To avoid harm to students and to society, schools must find alternatives to restrictive placements for students with conduct problems in secondary school, particularly when these students do not have cognitive impairments that might warrant specialized educational supports.