Against the background of fast‐paced aging and urbanization in China, the current study proposed a “Residential environment—Emotional health‐Life satisfaction” framework to investigate the associations among perceived residential environment quality (PREQ), positive affect (PA), social trust (ST), and life satisfaction (LS) of old adults. Data used were from a nationwide survey and covered 3825 people aged 60 years or older living in urban communities. The partial least squares‐structural equation modeling approach was adopted to verify hypotheses. The results found that (1) PREQ, PA, and ST were positively correlated with LS; (2) ST mediated the relationship between PREQ and LS; and (3) people who are men, living without children, high environmental perception, and with a workout habit were more sensitively to PREQ. These findings indicate that improving the residential environment helps to promote the mental health of the Chinese urban elderly, which may have some implications for establishing an age‐friendly community.