Objectives To determine if living in areas where higher proportions of people of the same ethnicity reside is protective for common mental disorders, and associated with a reduced exposure to discrimination and improved social support. Finally, to determine if any protective ethnic density effects are mediated by reduced exposure to racism and improved social support.Design Multi-level logistic regression analysis of national survey data, with area-level, own-group ethnic density modelled as the main exposure.Participants and setting 4281 participants of Irish, black Caribbean, Indian, Pakistani, Bangladeshi, and white British ethnicity, aged 16–74 years, randomly sampled from 892 “middle layer super output areas” in England.Main outcome measures Common mental disorders (assessed via structured interviews); discrimination (assessed via structured questionnaire); and social support and social networks (assessed via structured questionnaire).Results Although the most ethnically dense areas were also the poorest, for each 10 percentage point increase in own-group ethnic density, there was evidence of a decreased risk of common mental disorders, for the full ethnic minority sample (odds ratio 0.94 (95% confidence interval 0.89 to 0.99); P=0.02, trend), for the Irish group (odds ratio 0.21 (0.06 to 0.74); P=0.01, trend), and for the Bangladeshi group (odds ratio 0.75 (0.62 to 0.91); P=0.005, trend), after adjusting for a priori confounders. For some groups, living in areas of higher own-group density was associated with a reduction in the reporting of discrimination and with improved social support and improved social networks. However, none of these factors mediated ethnic density effects.Conclusions A protective effect of living in areas of higher own-group ethnic density was present for common mental disorders for some minority groups. People living in areas of higher own-group density may report improved social support and less discrimination, but these associations did not fully account for density effects.