The integration of refugees remains a contested issue in European public and academic debates, with concerns over segregation and low social capital. Previous studies on immigrant integration have struggled to determine the directional relationship between religiosity and integration, leaving it unclear whether religiosity influences integration or vice versa. This paper makes a novel contribution to the literature on immigrants’ integration by examining the complex relationship between integration, religiosity, and social capital. Empirically, the study utilizes panel data from the German Socio-Economic Panel (SOEP) and employs structural equation modelling alongside two-way fixed effects to disentangle these dynamics over time. The study found that a hostile local environment increases religiosity among refugees, potentially as a coping mechanism. Conversely, friendships within their origin communities are positively associated with friendships with Germans, suggesting that bonding social capital can facilitate bridging social capital. Furthermore, friendships with Germans are negatively related to religiosity, indicating that social integration may lead to secularisation, and positively related to employment, emphasizing their role in facilitating economic integration. These findings underscore the importance of the interconnectedness of social environments and interpersonal connections in shaping refugees’ integration processes.