In countries with comprehensive tobacco control, smoking is increasingly denormalised, with smokers subject to social stigmatisation. Qualitative research and commentary about denormalisation and stigma has largely focused on the impact on current or former smokers. Little attention has been given to the interaction between existing stigma among socially marginalised and disadvantaged young people and its role in smoking uptake, maintenance and resistance to quitting, or remaining a non-smoker. This article draws on a qualitative (grounded theory) study of young people aged 16–25 years who attended social services for at-risk youth in an inner city area in Australia, to explore the intersection between stigmatised identity and smoking in a context of increasing smoking denormalisation. Drawing on theoretical conceptualisations of stigma, we outline processes by which participants accept and apply social labels, internalise or distance themselves from stigmatised identities, and the influence of labelling on smoking trajectories, to demonstrate how the persistent dilemma of stigma shapes and reinforces smoking behaviour. The study highlights the need for tobacco control initiatives to align and integrate with broader initiatives to address structural inequality and social disadvantage.