Previous research indicates that the disproportionate distribution of income within society is associated with aggression and violence. Although research has been conducted identifying the relationship between income inequality and bullying victimization and perpetration, little is known about possible mediators. We investigated the association between income inequality and bullying perpetration and victimization among adolescents participating in the Cannabis, Obesity, Mental health, Physical activity, Alcohol use, Smoking, and Sedentary behavior (COMPASS) study. We identified whether school connectedness and psychosocial well-being mediated the relationship between income inequality and bullying behavior. This study used pooled cross-sectional data from 147,748 adolescents aged 13 to 18 from three waves (2015–2016, 2016–2017, 2017–2018) of the COMPASS study from 157 secondary schools in British Columbia, Alberta, Ontario, and Quebec (Canada). The Gini coefficient was calculated based on the school Census Divisions (CD) using the Canada 2016 Census and linked with student data. We used multilevel modeling to investigate the relationship between income inequality and self-reported bullying victimization and perpetration, while controlling for individual-, school-, and CD-level characteristics. A standard deviation increase in Gini coefficient was associated with increased odds for bullying victimization and perpetration. Findings were observed among girls; however, inequality was only associated with perpetration among boys. We identified social cohesion and psychosocial well-being as potential mediators. To counter the adverse effects of income inequality, school-based interventions designed to increase school connectedness and student psychosocial well-being should be implemented to protect against bullying.