Ventricular enlargement and reduced prefrontal volume are consistent findings in schizophrenia. Both are present in first episode subjects and may be detectable before the onset of clinical disorder. Substance misuse is more common in people with schizophrenia and is associated with similar brain abnormalities. We employ a prospective cohort study with nested case control comparison design to investigate the association between substance misuse, brain abnormality, and subsequent schizophrenia. Substance misuse history, imaging data, and clinical information were collected on 147 subjects at high risk of schizophrenia and 36 controls. Regions exhibiting a significant relationship between level of use of alcohol, cannabis or tobacco, and structure volume were identified. Multivariate regression then elucidated the relationship between level of substance use and structure volumes while accounting for correlations between these variables and correcting for potential confounders. Finally, we established whether substance misuse was associated with later risk of schizophrenia. Increased ventricular volume was associated with alcohol and cannabis use in a dose-dependent manner. Alcohol consumption was associated with reduced frontal lobe volume. Multiple regression analyses found both alcohol and cannabis were significant predictors of these abnormalities when simultaneously entered into the statistical model. Alcohol and cannabis misuse were associated with an increased subsequent risk of schizophrenia. We provide prospective evidence that use of cannabis or alcohol by people at high genetic risk of schizophrenia is associated with brain abnormalities and later risk of psychosis. A family history of schizophrenia may render the brain particularly sensitive to the risk-modifying effects of these substances.