Behavioral and emotional strengths are important to consider when understanding youth mental health and treatment. This study examined the association between youth strengths and functional impairment, and whether this association is modified by race/ethnicity. Multinomial logistic regression models were used to estimate the effects of strengths on impairment, and examine whether race and ethnicity modified this relationship in 8,129 Caucasian, African American, Hispanic, and American Indian/Alaska Native youth, between 5 and 18 years of age. Results suggest that youth with average and above average strengths were less likely to have impairment compared to youth with below average strengths. Race and ethnicity modified this relationship in both expected and unexpected ways. Among youth with average and above average strengths, racial and ethnic minority youth appear to have more impairment than Caucasian youth. However, among youth with below average strengths, racial and ethnic minority youth have less impairment than Caucasian youth. Findings highlight the importance of incorporating strengths-based approaches in youth mental health treatment and the need for further research to understand the specific nature of strengths as it effects impairment across racial/ethnic groups. Implications and recommendations are discussed.