The Dual Failure Model suggests that peer victimization (social failure) and academic difficulties (academic failure) mediate the association between externalizing and later internalizing problems. The present study sought to better understand why children with externalizing problems develop later internalizing problems by testing the Dual Failure Model using a sample of 744 children (aged 6 to 10 at Time 1 [T1]), of whom 434 (44.7% girls) presented with high levels of conduct problems at study inception. Both parent and teacher ratings of externalizing and internalizing problems support the social failure pathway, but not the academic failure pathway. Children with externalizing behaviors at T1 who developed internalizing problems 2 years later did so via their experiences of peer victimization. These results apply for both boys and girls and do not vary according to child age at T1 or the level of conduct problems at study inception. These findings underscore the importance of early screening and intervention for externalizing behavioral problems in order to reduce subsequent peer victimization and internalizing problems. Findings regarding the consequences of internalizing are also discussed.