Interest in understanding how psychosocial environments shape youth outcomes has grown considerably. School environments are of particular interest to prevention scientists as many prevention interventions are school-based. Therefore, effective conceptualization and operationalization of the school environment is critical. This paper presents an illustration of an emerging analytic method called multilevel factor analysis (MLFA) that provides an alternative strategy to conceptualize, measure, and model environments. MLFA decomposes the total sample variance-covariance matrix for variables measured at the individual level into within-cluster (e.g., student level) and between-cluster (e.g., school level) matrices and simultaneously models potentially distinct latent factor structures at each level. Using data from 79,362 students from 126 schools in the National Longitudinal Study of Adolescent to Adult Health (formerly known as the National Longitudinal Study of Adolescent Health), we use MLFA to show how 20 items capturing student self-reported behaviors and emotions provide information about both students (within level) and their school environment (between level). We identified four latent factors at the within level: (1) school adjustment, (2) externalizing problems, (3) internalizing problems, and (4) self-esteem. Three factors were identified at the between level: (1) collective school adjustment, (2) psychosocial environment, and (3) collective self-esteem. The finding of different and substantively distinct latent factor structures at each level emphasizes the need for prevention theory and practice to separately consider and measure constructs at each level of analysis. The MLFA method can be applied to other nested relationships, such as youth in neighborhoods, and extended to a multilevel structural equation model to better understand associations between environments and individual outcomes and therefore how to best implement preventive interventions.