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This study examines the relationship between friendship networks and mental health. Using the Children of Immigrants Longitudinal Study in Four European Countries (CILS4EU), we test if friendships with similar others lead to better mental health, mediated by a strong ethnic identity. The results suggest that children of immigrants with many co-ethnic or many immigrant friends have better self-esteem and are less depressed than those with fewer similar friends. Both preference and opportunities for friendships with similar others, such as a diverse classroom, lead to better mental health outcomes, and friendship networks affect mental health only partially through a strong ethnic identity. Children of immigrants, therefore, benefit in many ways from being surrounded in their school or friend group by students who have similar life experiences, regardless of their country of origin. These findings have implications for future research on ethnic identity, intra-group relations, diversity, and mental health outcomes.