School suspension is a common form of punishment in the United States that is disproportionately concentrated among racial minority and disadvantaged youth. Labeling theories imply that such stigmatized sanctions may lead to interpersonal exclusion from normative others and greater involvement with antisocial peers. I test these propositions in the context of rural schools by (1) examining the association between suspension and discontinuity in same-grade friendship ties, focusing on three mechanisms implied in labeling theories: rejection, withdrawal, and physical separation; (2) testing the association between suspension and increased involvement with antisocial peers; and (3) assessing whether these associations are stronger in smaller schools. Consistent with labeling theories, I find suspension associated with greater discontinuity in friendship ties, based on changes in the respondents' friendship preferences and self-reports of their peers. Findings are also consistent with changes in perceptual measures of exclusion. Additionally, I find suspension associated with greater involvement with substance-using peers. Some but not all of these associations are stronger in smaller rural schools. Given the disproportionate distribution of suspension, my findings suggest an excessive reliance on this exclusionary form of punishment may foster inequality among these youth.