The 18-year-old Disney singer and actress was recently admitted to rehab with "emotional and psychological issues", and a source claims her wild partying ways may have contributed to her present state.
US college student Brian Payne said he witnessed Demi snorting cocaine at a party, after they had both been to see band Neon Indian in her hometown, Dallas, just after Christmas last year.
He told Lifeandstylemag.com: "She was doing line after line like a pro - and she was 17 at the time.
"I just remember her doing it as if she had been doing it for a long time. It didn`t seem like something new to her."
Another source close to the `La La Land` singer said she has dealt badly with her recent split from pop singer Joe Jonas - whom she was performing on tour alongside at the time she was admitted to rehab.
The source said: "Demi`s been on a tear lately. She`ll chug booze straight from the bottle (sic)."
Demi`s family have yet to respond to allegations she is a heavydrinker or cocaine user, but her estranged father, Patrick Lovato, previously said he blames the pressures of fame were "one of the things I worried about when she signed with Disney."
Other members of Demi`s family have, however, blasted Patrick; saying he "knows nothing" about his daughter, and she herself said last year she hadn`t spoken to him for two years.