Background: Microaggressions are subtle slights that can cause significant psychological distress among marginalized groups. Few studies have explored interventions that might mitigate these effects. Objective: This study aimed to investigate if and how humor-infused immersive storytelling via virtual reality (VR) could reduce identity-related psychological distress caused by microaggressions. Methods: Using a community-based participatory research approach, we developed a 7-min 360-degree VR film depicting scenarios of microaggressions across various identities. Forty-six college students participated in a controlled study where they were exposed to this immersive VR experience. We measured identity-related psychological anxiety, character identification, perceived humor, and perceived psychological presence. Results: The findings demonstrated a significant anxiety reduction following the VR intervention, supporting the efficacy of humor-infused storytelling in alleviating the impact of microaggressions. Character identification significantly predicted anxiety reduction, while perceived humor and psychological presence did not directly influence anxiety reduction but indirectly contributed through enhanced character identification. Conclusions: Humor-infused immersive storytelling, facilitated by VR, effectively reduces identity-related psychological distress primarily through character identification. The structural equation modeling results emphasize the importance of integrating humor and psychological presence to enhance character connection, advocating for a balanced approach that combines traditional narrative elements with technological innovations in health interventions aimed at combating the adverse psychological effects of microaggressions.