When examining the effects of prenatal exposure to maternal smoking during pregnancy (MSDP) on later offspring substance use, it is critical to consider familial environments confounded with MSDP. The purpose of this study was to examine the effect of MSDP on offspring's initial reactions to cigarettes and alcohol, which are indicators of future substance-use related problems. We tested these effects using two propensity score approaches (1) by controlling for confounding using the MSDP propensity score and (2) examining effects of MSDP across the MSDP risk distribution by grouping individuals into quantiles based on their MSDP propensity score. This study used data from 829 unrelated mothers with a reported lifetime history of smoking to determine the propensity for smoking only during their first trimester (MSDP-E) or throughout their entire pregnancy (MSDP-T). Propensity score analyses focused on the offspring (N = 1616 female twins) of a large subset of these mothers. We examined the effects of levels of MSDP-E/T on offspring initial reactions to their first experiences with alcohol and cigarettes, across the distribution of liability for MSDP-E/T. MSDP-E/T emerged as significant predictors of offspring reactions to alcohol and cigarettes, but the effects were confounded by the familial liability for MSDP. Further, the unique MSDP effects that emerged were not uniform across the MSDP familial risk distribution. Our findings underscore the importance of properly accounting for correlated familial risk factors when examining the effects of MSDP on substance related outcomes.