Purpose The purpose of this paper is to examine the mediating effect of teacher’s psychological empowerment between school leadership style and teachers’ work-related outcomes. Design/methodology/approach A total of 711 teachers from 31 Estonian schools were surveyed with a questionnaire measuring four dimensions of psychological empowerment (competence, meaning, self-determination and impact), school leadership characteristics (leadership style, leader’s empowering behavior and trust in leader) and teacher’s work-related outcomes (job satisfaction and workplace attachment). AMOS path analysis was used to investigate the direct and indirect relations between the teachers’ perceptions of school leadership, their psychological empowerment and their workplace attachment and job satisfaction. Findings This study found that psychological empowerment (subscales meaning and impact) mediates the relationship between perceived leadership empowerment behavior and teachers’ work-related outcomes. Also, the psychological empowerment (meaning and impact) mediates the relationship between perceived leadership style and teachers’ work-related outcomes. Trust in the principal has direct and indirect effect (through psychological empowerment) on job satisfaction, whereas there only seems to be indirect effect on workplace attachment through two components of psychological empowerment. Practical implications The mediating role of psychological empowerment includes an important message for school principals – in order to empower employees it is not sufficient to merely delegate formal power and decision-making rights. To facilitate the development of psychological empowerment, it is important to provide employees with an opportunity to experience agency, to experience that their voice and opinions are taken into account (perceived impact) and the purpose and targets of the whole organization are discussed with the employees and formulated in collaboration with them (perceived meaning). Originality/value Psychological empowerment as a mediating variable has not been widely researched, especially in school environment. The results will provide important signals for school principals, where and how to find leverage to improve teachers’ job satisfaction and workplace attachment.