Prejudice is one of the major threats to the cohesion of multicultural societies and adolescent years play a key role in its development. How social contexts contribute to adolescent prejudice is, however, not yet well-known. This 3-wave study of Swedish majority adolescents (N = 659; MageT1 = 13.41; MageT3 = 17.33) examined the effects of parents’ and peers’ attitudes on changes in youth attitudes toward immigrants as well as an interplay between parent, peer, and school context. The results of multilevel analyses revealed that within-person fluctuations in youth attitudes were positively related to fluctuations in peers’ but not parents’ attitudes. Both parents’ and peers’ attitudes, however, significantly predicted the differences in level and rate of change in attitudes between adolescents. In addition to these direct effects, mediation analysis showed that parents’ attitudes predicted youth attitudes indirectly, via the attitudes of the peers youth associate with, suggesting an overall greater importance of parental bias. Peers’ attitudes did not moderate the effects of parents but youth from ethnically diverse classrooms were less affected by their parents’ prejudice than youth from less diverse classrooms. The findings contribute to a better understanding of the role of social context in the development of prejudice. They suggest that while parents set the stage, peers explain the day-to-day variation in prejudice, and that classroom diversity offsets some of the negative effects of parental bias.