Existing theoretical explanations of the mental health consequences of unemployment are outlined, critically reviewed and an alternative theory proposed. Theories reviewed include the rehabilitation approach, the stages model, Jahoda's functional model, Warr's vitamin model and Fryer's agency critique. A discussion of the effects of moderating variables--including the quality of work, work commitment and age--is used to assess the usefulness of these theoretical explanations. Most theories are found to deal inadequately with the temporal aspects of unemployment, the relationship between subjective experience and objective location and the complexity of the effects of moderating variables. In response to these inadequacies and in contrast to the predominant empiricist, psychological orientation, a middle range theory is proposed informed by a sociological perspective. The proposed theory conceptualises unemployment as a type of status passage and suggests an explanation of changes in mental health derived from identity theory.