The finding that victims’ psychological problems tend to be exacerbated in lower-victimization classrooms has been referred to as the “healthy context paradox.” The current study has put the healthy context paradox to a strict test by examining whether classroom-level victimization moderates bidirectional within- and between-person associations between victimization and psychological adjustment. Across one school year, 3,470 Finnish 4th to 9th graders (Mage = 13.16, 46.1% boys) reported their victimization, depressive symptoms, anxiety, and self-esteem. Three types of multilevel models (cross-lagged panel, latent change score, and random-intercept cross-lagged panel) were estimated for each indicator of psychological adjustment. Findings indicated that the healthy context paradox emerges because classroom-level victimization moderates the prospective effect of victimization on psychological problems, rather than the effect of psychological problems on victimization. In classrooms with lower victimization, victims not only experience worse psychological maladjustment over time compared to others (between-person changes), but also higher maladjustment than before (absolute within-person changes).