AIMS: The increasing number of people on disability pension in Sweden is of concern for Swedish policy-makers, and there is a need for a better understanding of the mechanisms behind disability pension. We investigated (i) whether women living in the same neighborhood have a similar propensity for disability pension that relates to neighborhood social participation, and (ii) whether there is an association between anxiolytic-hypnotic drug (AHD) use and disability pension in women that is modified by the neighborhood context. METHODS: We used multilevel logistic regression with 12,156 women aged 45 to 64 (first level) residing in 95 neighborhoods (second level) in the city of Malmö (250,000 inhabitants), Sweden, who participated in the Malmö Diet and Cancer Study (1991-96). RESULTS: Both AHD use (OR = 2.09, 95% CI 1.65, 2.65) and neighborhood rate of low social participation (OR = 11.85, 95% CI 5.09, 27.58) were associated with higher propensity for disability pension. The interval odds ratio indicated that the influence of neighborhood social participation was large compared with the unexplained variance between the neighborhoods. The association between AHD use and disability pension was not modified by the neighborhood context. The median odds ratio was 1.44 after adjusting for individual characteristics and 1.27 after the additional adjusting for neighborhood social participation. CONCLUSIONS: Women living in the same neighborhood appear to have a similar propensity for disability pension, beyond individual characteristics, and this contextual effect seems largely explained by neighborhood social participation. In addition, AHD use might increase the propensity for disability pension in women.