Increasing global urbanization limits interaction between people and natural environments, which may negatively impact population health and wellbeing. Urban residents who live near parks report better mental health. Physical activity (PA) reduces depression and improves quality of life. Despite PA’s protective effects on mental health, the added benefit of urban park use for PA is unclear. Thus, we examined whether park-based PA mediated associations between park proximity and mental distress among 3652 New York City residents (61.4% 45 + years, 58.9% female, 56.3% non-white) who completed the 2010–2011 Physical Activity and Transit (PAT) random-digit-dial survey. Measures included number of poor mental health days in the previous month (outcome), self-reported time to walk to the nearest park from home (exposure), and frequency of park use for sports, exercise or PA (mediator). We used multiple regression with bootstrap-generated 95% bias-corrected confidence intervals (BC CIs) to test for mediation by park-based PA and moderation by gender, dog ownership, PA with others, and perceived park crime. Park proximity was indirectly associated with fewer days of poor mental health via park-based PA, but only among those not concerned about park crime (index of moderated mediation = 0.04; SE = 0.02; 95% BC CI = 0.01, 0.10). Investment in park safety and park-based PA promotion in urban neighborhoods may help to maximize the mental health benefits of nearby parks.