Young adults often experience psychological distress and poor quality of life (QoL). Yet, there are no objective neural markers to accurately guide interventions to help improve these measures. We thus aimed to identify directional relationships between frontoamygdala emotional regulation circuitry activity during emotion processing, personality traits, and symptoms associated with psychological distress, and QoL. One hundred twenty 18-25-year olds, n=51 psychologically distressed and n=69 healthy individuals, completed a face emotion-processing task during functional magnetic resonance imaging, clinical and behavioral measures, and QoL assessment. Penalized regression, accounting for large numbers of independent variables, showed that increased state and trait anxiety, cohort and measures of general and anhedonic depression severity predicted poorer QoL (all exponents>0.87). Only state and trait anxiety predicted emotion processing-related frontoamygdala activity (all exponents=1.00). State and trait anxiety fully mediated the relationship between amygdala activity and QoL (P-value increased from 0.001 to 0.29: left amygdala, and from 0.003 to 0.94: right amygdala). State anxiety fully mediated the relationship between left ventrolateral prefrontal cortical (vlPFC) activity and QoL (P-value increased from 0.01 to 0.18). Testing an alternative mediational pathway showed that the relationship between state and trait anxiety and QoL was not mediated by amygdala or left vlPFC activity. We thereby identify specific, directional relationships linking amygdala and left vlPFC activity, state and trait anxiety, and poor QoL across different diagnoses. Our findings highlight roles of amygdala and left vlPFC activity as neural predictors of anxiety and poor QoL, and as potentially important targets for novel interventions to reduce anxiety and, in turn, improve QoL in young adults.