Objective Young adults with disabilities are less likely to be employed and more likely to have poor mental health than peers without disabilities. Growing evidence shows that social determinants of health may be causally related to mental health outcomes of people with disabilities. We aimed to assess if the disability to mental health association was mediated by employment status among young adults aged 20–35 years.

Methods Four consecutive years (2016–2019) of data from the Household, Income and Labour Dynamics in Australia survey were used to conduct a causal mediation analysis. We decomposed the total causal effect of disability status on mental health (Short Form-36 Mental Health Inventory-5) into the natural direct effect from disability to mental health and the natural indirect effect representing the pathway through the employment mediator (being employed; being unemployed or wanting to work).

Results 3435 participants (3058 with no disabilities, 377 with disabilities) were included in the analysis. The total causal effect of disability status on mental health was an estimated mean decrease in mental health of 4.84 points (95% CI −7.44 to –2.23). The indirect effect, through employment status, was estimated to be a 0.91-point decline in mental health (95% CI −1.50 to –0.31).

Conclusions Results suggest disability has an effect on the mental health of young adults; a proportion of this effect appears to operate through employment. The mental health of young adults with disabilities could potentially be improved with interventions to improve employment outcomes among this group, and by supporting individuals with disabilities into suitable employment.