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Background To address social inequalities in adolescent substance use and consequent disparities in health, it is important to identify the mechanisms of the association between substance use and academic performance. We study the role of health literacy (HL) in the association between academic performance and weekly smoking, monthly alcohol use and cannabis ever-use among adolescents in Europe. Methods SILNE-R school survey data, which was collected in 2016–17 with paper-and-pencil-method from Hanover (GE), Amersfoort (NL) and Tampere (FI), were used (N  = 5088, age 13–19). Health Literacy for School-aged Children instrument was used to assess students' HL. Logistic regression analyzed the association of substance use with academic performance and HL, separately and in the same model. Linear and multinomial logistic regression analyzed the association between academic performance and HL. Results Poor academic performance compared with high was associated with smoking [odds ratio (OR) 3.94, 95% confidence interval (CI) 2.83–5.49], alcohol use (OR: 2.94, 95% CI: 2.34–3.68) and cannabis use (OR: 2.56, 95% CI: 1.89–3.48). Poor HL was also associated with each substance use (with ORs of 2.32, 1.85 and 1.29). HL was positively associated with academic performance (β = 1.04, 95% CI: 0.89–1.20). The associations between academic performance and substance use were only slightly attenuated after controlling for HL. Conclusions Academic performance and HL were both determinants of substance use, confirming their role in tackling the disparities in substance use. However, HL did not demonstrably mediate the association between academic performance and substance use. A wider set of factors needs to be tackled to address emerging social inequalities in adolescent substance use. [ABSTRACT FROM AUTHOR]