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Objectives: To what extent is the frame of reference of overlapping friendship communities important for young people's feelings of discrimination and subjective well-being? That is, do youth feel better or worse to the extent that they feel less or more discrimination than their friends?, Method: Participants ( N = 898; M age = 14.13; SD age = 3.37; 46% females; 46% Whites; 20% Indigenous; 34% other minorities) were high school students of three ethnically diverse, low socioeconomic status public schools in New South Wales, Australia. Cross-sectional data were collected to measure felt discrimination, mental health, subjective well-being, social support, and nominations of close friends. A state-of-the-art method of clustering links was used to identify overlapping friendship communities, and multiple membership multilevel models were run to examine whether community-level discrimination moderated the link between individual-level discrimination and well-being., Results: When the community level discrimination was low, there was no well-being related cost or benefit of individual-level discrimination. But when the community-level discrimination was high, individuals in those communities who themselves felt low discrimination had better well-being than individuals who themselves felt high discrimination., Conclusions: We provide evidence for a frame-of-reference effect involving discrimination. Individuals' relative standing in their friendship communities with high group-level discrimination reliably predicted the individuals' well-being levels, regardless of ethnicity. The results highlight the importance of identifying overlapping friendship communities for understanding the dynamics of discrimination and well-being of ethnically diverse youth. (PsycINFO Database Record (c) 2020 APA, all rights reserved).