Objective To identify the factors associated with mental health among Aboriginal children living in urban communities in New South Wales, Australia. Design Cross-sectional survey (phase I of a longitudinal study). Setting 4 Aboriginal Community Controlled Health Services that deliver primary care. All services were located in urban communities in New South Wales, Australia. Participants 1005 Aboriginal children aged 4-17 years who participated in phase I of the Study of Environment on Aboriginal Resilience and Child Health (SEARCH). Primary outcome measure Carer report version of the Strengths and Difficulties Questionnaire. Scores <17 were considered to indicate good mental health for the purposes of this article. Results The majority (72%) of SEARCH participants were not at high risk for emotional or behavioural problems. After adjusting for the relative contributions of significant demographic, child and carer health factors, the factors associated with good mental health among SEARCH children were having a carer who was not highly psychologically distressed (OR=2.8, 95% CI 1.6 to 5.1); not suffering from frequent chest, gastrointestinal or skin infections (OR=2.8, 95% CI 1.8 to 4.3); and eating two or more servings of vegetables per day (OR=2.1, 95% CI 1.2 to 3.8). Being raised by a foster carer (OR=0.2, 95% CI 0.01 to 0.71) and having lived in 4 or more homes since birth (OR=0.62, 95% CI 0.39 to 1.0) were associated with significantly lower odds of good mental health. Slightly different patterns of results were noted for adolescents than younger children. Conclusions Most children who participated in SEARCH were not at high risk for emotional or behavioural problems. Promising targets for efforts to promote mental health among urban Aboriginal children may include the timely provision of medical care for children and provision of additional support for parents and carers experiencing mental or physical health problems, for adolescent boys and for young people in the foster care system.