The protective ethnic density effect hypothesis, which suggests that minoritized individuals who grow up in neighborhoods with a high proportion of ethnoracial minoritized groups are protected from the effects of perceived discrimination, has not been examined among individuals at clinical high risk of psychosis (CHR-P). This level of examination may help identify intervention targets for preventing psychosis among high-risk individuals. To examine the association between area-level ethnic density during childhood, perceived discrimination, and psychosis risk outcomes among ethnoracial minoritized individuals with CHR-P. Data were collected as part of the North American Prodrome Longitudinal Study-2 (NAPLS 2) between November 2008 and March 2013. Participants included ethnoracial minoritized youth with CHR-P. Area-level ethnoracial minoritized density pertained to the percent of ethnoracial minoritized individuals within the participant's county during childhood. Generalized mixed-effects models with random intercepts for participants, NAPLS 2 site, and county estimated the associations between area-level ethnic density and the risk of psychosis risk outcomes. Self-reported experience of discrimination was assessed. Mediation analyses computed the indirect association of perceived discrimination in the prospective correlation between ethnic density and psychosis risk outcomes. Analyses took place between December 2021 and June 2023. Psychosis risk outcomes included remission, symptomatic, progression, and conversion to psychosis and were assessed throughout 24-month follow-up. Of 193 individuals, the mean (SD) age was 17.5 (3.4) years and 113 males (58.5%) were included. Participants self-identified as Asian (29 [15.0%]), Black (57 [29.0%]), Hispanic (any race; 87 [45.0%]), or other (First Nations, Middle Eastern, and interracial individuals; 20 [10.4%]). Greater area-level minoritized density was associated with a lower likelihood of remaining symptomatic (relative risk [RR], 0.54 [95% CI, 0.33-0.89]) and having progressively worsening symptoms (RR, 0.52 [95% CI, 0.32-0.86]) compared with being in remission. More perceived discrimination was associated with a higher risk of staying symptomatic (RR, 1.43 [95% CI, 1.09-1.88]) and progressively worsening (RR, 1.34 [95% CI, 1.02-1.78]) compared with being in remission. Perceived discrimination significantly mediated 21.7% (95% CI, 4.1%-67.0%; P = .02) of the association between area-level minoritized density and the likelihood of being in remission. This study found that among ethnoracial minority youth with CHR-P, growing up in communities with a greater proportion of ethnically minoritized individuals was associated with remission of psychosis risk symptoms partly through lower levels of perceived discrimination. Understanding how the social environment impacts early psychosis risk may help develop effective interventions to prevent psychosis, especially for vulnerable minoritized youth.