Substance use is prevalent amongst Australians who have experienced homelessness, but the social impacts of using substances amongst this group are poorly understood. This study uses a relational and critical realist approach to understand the role of substance use on the social lives of people with lived experience of homelessness. A mixed‐methods design was used to explore this question and assess the experiences of people who have exited homelessness. Recruiting across services catering to marginalised populations, 110 participants completed a cross‐sectional survey. Findings showed substance use both socially connected and disconnected participants, and that attempting abstinence required participants to negotiate and alter their social networks. To participants, being a substance “user,” or “non‐user,” was a social identity that they actively negotiated to facilitate competing social, psychological and material/embodied needs. Participants chose to engage and not engage with others to craft a social identity they valued, which had the sometimes‐negative side‐effect of limiting potential relationships, leaving users feeling isolated from their non‐users and a continued imperative to keep using. The impacts of substance use on social networks were similar for currently and formerly homeless participants, suggesting transitioning into housing may not immediately prompt a reduction in substance use or influence from substance‐using peers. Interventions with substance users with lived experience of homelessness would benefit from taking a social identity approach that incorporates an understanding of the material/embodied aspects of addiction to provide a holistic model of care that best supports the relational needs of the client.