Walkability describes the capacity of the built environment to promote walking, and has been proposed as a potential focus for community-level mental health planning. We evaluated this possibility by examining the contribution of area-level walkability to variation in psychosocial distress in a population cohort at spatial scales comparable to those used for regional planning in Sydney, Australia. Data on psychosocial distress were analysed for 91,142 respondents to the 45 and Up Study baseline survey between January 2006 and April 2009. We fit conditional auto regression models at the postal area level to obtain smoothed “disease maps” for psychosocial distress, and assess its association with area-level walkability after adjusting for individual- and area-level factors. Prevalence of psychosocial distress was 7.8%; similar for low (7.9%), low-medium (7.9%), medium-high (8.0%), and high (7.4%) walkability areas; and decreased with reducing postal area socioeconomic disadvantage: 12.2% (most), 9.3%, 7.5%, 5.9%, and 4.7% (least). Unadjusted disease maps indicated strong geographic clustering of psychosocial distress with 99.0% of excess prevalence due to unobserved and spatially structured factors, which was reduced to 55.3% in fully adjusted maps. Spatial and unstructured variance decreased by 97.3% and 39.8% after adjusting for individual-level factors, and another 2.3% and 4.2% with the inclusions of area-level factors. Excess prevalence of psychosocial distress in postal areas was attenuated in adjusted models but remained spatially structured. Postal area prevalence of high psychosocial distress is geographically clustered in Sydney, but is unrelated to postal area walkability. Area-level socioeconomic disadvantage makes a small contribution to this spatial structure; however, community-level mental health planning will likely deliver greatest benefits by focusing on individual-level contributors to disease burden and inequality associated with psychosocial distress.