Psychological derailment refers to the phenomenon whereby original self-expectations are seriously inconsistent with developments in reality. Research to date has neglected the valence of derailment and the mechanism by which it affects mental health. To improve the mental health of Chinese adolescents from the perspective of psychological derailment, after validating the translated Chinese versions of the derailment measurement instruments, we conducted an empirical study on the freshmen in senior high schools and universities in China and obtained three major results. First, the study revealed the prevalence of psychological derailment among Chinese adolescents and its strong correlation with mental health indicators (depression, anxiety, stress and satisfaction with life). Second, the study found significant differences in all mental health indicators among the non-derailed group, the positively derailed group and the negatively derailed group, and suggested that positive psychological derailment may help to ease mental health problems. Third, using path analysis to establish a mediated moderation model relating psychological derailment, psychological derailment valence, self-esteem and depression, the study uncovered that the valence of psychological derailment moderated the effect of psychological derailment on depression, while self-esteem mediated the moderating effect. The implications and limitations of the study are discussed.