Previous studies using clinic or convenience samples have indicated that not only patients with arthritis are at increased risk of depression, but there may also be a link between depression and disability in people with arthritis. We examined the prevalence of psychological distress in a population sample with and without arthritis and the association with health-related quality of life. The WANTS Health and Well-being Survey was a population household telephone interview survey of adults (age > or =18 years) in three states of Australia. Data obtained were weighted to provide population-representative estimates. The survey included questions regarding arthritis, SF-12, the Kessler 10 index of psychological distress and presence of mental health conditions. A total of 7,473 interviews providing information on arthritis were completed, with 1,364 (18.3%) reporting arthritis. Self-reported mental health conditions were more frequent in those with arthritis (14.9 vs 12.0%, p = 0.004), and a higher proportion were at a medium or high risk for anxiety or depression (39.0 vs 31.0%, p < 0.001). People with arthritis had significantly lower scores on the SF-12 physical component summaries compared to those without arthritis. Among those with arthritis, those with coexisting psychological distress had significantly lower scores on the SF-12 physical component summary than those without psychological distress. Psychological distress is common among people with arthritis in the community. In arthritis, psychological distress makes a significant additional negative impact on the physical well-being. Physicians need to recognize and address this additional impact on physical functioning in patients with arthritis.