Used when someone does/plans/talks about something a bit crazy. A lengthened version would be "What drug are you taking, to be high enough to do that". "What are you on" is usually followed up with "Do you want a list?" even if that person is not under the influence of drugs. N.B Used in Britain, less in America
Friend 1 : "I'm gonna jump off that cliff"
Friend 2 : "What are you on?"
Friend 1 : "Do you want a list?"