OBJECTIVE: A suspicion that disability payments may exacerbate substance use among persons with chemical addictions recently led Congress to limit federal disability entitlements of applicants whose disability status is related to substance abuse, even if they have another serious mental disorder. This study empirically explored the relationship between receipt of disability payments and substance use among homeless mentally ill veterans. METHODS: The study sample included 2,474 homeless veterans with a current diagnosis of schizophrenia and a substance abuse or dependence disorder who were assessed in a community outreach program sponsored by the Department of Veterans Affairs. RESULTS: After adjustment for other relevant factors, receipt of disability payments showed no significant relationship to the number of days of substance use a month, even among frequent users of alcohol and drugs. CONCLUSIONS: Findings about substance use among the homeless veterans with serious mental disorders in this study provide no support for the assertion that disability payments exacerbate substance use.