There is minimal knowledge about the impact of large-scale epidemics on community mental health, particularly during the acute phase. This gap in knowledge means we are critically ill-equipped to support communities as they face the unprecedented COVID-19 pandemic. This study aimed to provide data urgently needed to inform government policy and resource allocation now and in other future crises. The study was the first to survey a representative sample from the Australian population at the early acute phase of the COVID-19 pandemic. Depression, anxiety, and psychological wellbeing were measured with well-validated scales (PHQ-9, GAD-7, WHO-5). Using linear regression, we tested for associations between mental health and exposure to COVID-19, impacts of COVID-19 on work and social functioning, and socio-demographic factors. Depression and anxiety symptoms were substantively elevated relative to usual population data, including for individuals with no existing mental health diagnosis. Exposure to COVID-19 had minimal association with mental health outcomes. Recent exposure to the Australian bushfires was also unrelated to depression and anxiety, although bushfire smoke exposure correlated with reduced psychological wellbeing. In contrast, pandemic-induced impairments in work and social functioning were strongly associated with elevated depression and anxiety symptoms, as well as decreased psychological wellbeing. Financial distress due to the pandemic, rather than job loss
per se
, was also a key correlate of poorer mental health. These findings suggest that minimizing disruption to work and social functioning, and increasing access to mental health services in the community, are important policy goals to minimize pandemic-related impacts on mental health and wellbeing. Innovative and creative strategies are needed to meet these community needs while continuing to enact vital public health strategies to control the spread of COVID-19.