We bring together research on social networks and neighborhood disadvantage to examine how they jointly affect unemployed individuals’ probability of re-entering employment. Data from the UK Household Longitudinal Study “Understanding Society” provides information on the proportion of friends who live in the same neighborhood and is linked with small-scale administrative information on specific dimensions of neighborhood deprivation. Results indicate that neighborhood employment-deprivation prolongs unemployment, but only for individuals who report that all of their friends live in the same neighborhood. Living in an advantaged neighborhood with all of one’s friends in the neighborhood increases chances to exit unemployment. In contrast, neighborhood location is not associated with unemployment exit if one’s friends do not live in the same neighborhood. We conclude that neighborhood effects on exiting unemployment critically depend on individuals’ social embeddedness in the neighborhood. Not just residing in a disadvantaged neighborhood, but actually living there with all one’s friends, prevents individuals from re-entering employment. This opens new avenues for theorizing neighborhood effects as social rather than geographic phenomena, and highlights that the effects of neighborhood socio-economic characteristics are conditional on the level of interaction residents have within their neighborhood.