Studies have found that arrested youth are more likely than non-arrested youth to experience later maladjustment; however, methodological limitations restrict these generalizations. The most noteworthy limitation of prior research are potential “selection effects,” with arrested youth likely to have different psychological and behavioral profiles prior to justice system contact than non-arrested youth. This presents the question of whether the observed maladjustment is due to the type of adolescent who comes in contact with law enforcement or due the type of intervention that the arrested youth experiences. The authors overcome these limitations by comparing the outcomes of demographically similar adolescents who commit the same crime, but differ in regard to outcomes. Propensity score matching was used to compare arrested and non-arrested youth, and the author investigated whether contact with the justice system contributed to school-related outcomes, substance use, and delinquency, and if these varied based on arrest, formal processing, or diversion. Selection effects were taken into consideration and indicate that contact with the juvenile justice system does not have a universally harmful effect on development. Diversion was found to deter future offending and school misconduct. However, both diverted and processed youth were more likely to be arrested during the study period with the risk of re-arrest highest for processed youth. Formally processed youth were also more likely to be transferred to an alternative or continuation school. The results suggest that increased justice system surveillance might improve school performance and deter offending, but may also lead to further contact. Although an adolescent’s first arrest might lead to positive outcomes in the immediate future, the effects of subsequent contacts are unknown. The data suggest that the default policy should be to divert low-level, first-time offenders and keep justice system contact to a minimum.