Amanda Bynes is ADAMANT ... she's not crazy AND she definitely doesn't smoke weed in her car ... that's what the actress is telling close friends.
The actress, 26, who has been charged with a DUI and two counts of hit-and-run, has been spotted acting increasingly erratically over the last several months, including "bizarre" behavior at her gym, according to a source, and being involved in a string of car accidents.
She told PEOPLE: "I am retired as an actor. I am moving to New York to launch my career. I am going to do a fashion line," added Bynes, who was polite, respectful and upbeat on the phone. "I am not talking about being arrested for DUI because I don't drink, and I don't drink and drive. It is all false."
The actress says ... the stories about her mental state "are being blown way out of proportion." She is also telling friends ... the picture TMZ posted of her smoking from a drug pipe inside her car (below) is not what it seems. She says she was smoking tobacco ... despite the fact that her cup-holders had remnants of what appeared to be marijuana.
"People around Amanda are really concerned about her," a source, who has spent time with Bynes in recent months, tells PEOPLE in its new issue, on newsstands Friday. "She tells people she doesn't party or drink. She doesn't realize she has a problem." Even her parents have relocated from Texas to Los Angeles to be near her
In other Amanda news ... she's still facing TWO hit-and-run charges, one DUI charge and her license is still suspended. And her car got impounded yesterday.