The COVID-19 pandemic has greatly affected economies around the world, causing record unemployment rates that have exacerbated the already prevalent job insecurity, thereby leading to psychological distress among many individuals. The present study aims to reveal the underlying mechanisms of psychological distress induced by the COVID-19 pandemic among job-insecure employees and to identify one of the emotion regulation strategies (i.e., cognitive reappraisal) as a protective factor that mitigates psychological distress. Drawing upon transactional theory, we proposed and tested a moderated mediation model, wherein cognitive reappraisal serves as a moderator of the direct and indirect relationship between job insecurity and psychological distress via stress appraisals (i.e., threat appraisal and challenge appraisal) based on data from 922 employees. Results show that threat appraisal and challenge appraisal positively and negatively mediate the relationship between job insecurity and psychological distress, respectively. Furthermore, as an emotion regulation strategy, cognitive reappraisal mitigates psychological distress among job-insecure employees, weakens the positive indirect effect of threat appraisal, but intensifies the negative indirect effect of challenge appraisal. Our findings suggest that cognition plays an important role in individuals’ emotional reactions to COVID-19-related stress, and cognition reappraisal is an effective emotion regulation strategy in mitigating psychological distress. Therefore, cognition reappraisal skills should be improved to reduce psychological distress induced by COVID-19 pandemic.