Young people are challenging gender to expand beyond a male/female binary, yet research practices still lag behind these conceptions. This call-to-action paper will review the traditional conceptualizations of gender as prevalent in peer relations research, contrasted with modern approaches from scholars studying gender and sexual orientation diversity, and outline how youth are challenging binary conceptualizations. We provide recommended best practices to sensitively bridge this gap, including: using open responses where possible, and two-step closed-ended question formats where necessary, to measure gender identity; considering the context and role that gender identity and each of its facets might play in the research design; and preserving underrepresented groups even though they may be small. We close by exploring the ways in which the power of peer socialization can be (and likely currently are being) harnessed to support the ever-changing, diverse gender identities emergent in today's youth, and provide questions for future research.