Background: The link between mental illness and mental health is gaining focus in research and practice. This study aimed to investigate the association of mental disorders with positive mental health (PMH), overall health and quality of life. In addition, the role of PMH in mediating the relationships between mental disorders and health outcomes was assessed. Methods: The study sample comprised 2270 residents aged 18 years and above who participated in a nationally representative, cross-sectional survey estimating the lifetime prevalence of mood, anxiety and alcohol use disorders, and health outcomes (self-reported overall health, quality of life and PMH) in Singapore. The Positive Mental Health Instrument was used to estimate the level of Total PMH among the respondents with and without mental disorders. Associations between mental disorders and health outcomes were assessed through regression models. Path analyses were conducted to investigate mediating role of PMH. Results: Total PMH (Mean ± SD) was significantly lower among individuals having any of the studied lifetime mental disorders (4.23 ± 0.64 versus 4.50 ± 0.67 among those without these disorders). Although having a mood or anxiety disorder was associated with significantly lower Total PMH even after controlling for socio-demographic characteristics, similar relationship was not observed for alcohol use disorders. History of any mental disorders was also associated with lower overall health and quality of life. Total PMH mediated the relationships between mental disorders and overall health and quality of life by reducing the effect sizes for the associations between mental disorders and these health outcomes. Conclusions: Mental disorders were associated with poor health outcomes in affected individuals. This study showed that PMH can mediate the relationships between mental disorders and health outcomes, and act as an underlying mechanism to improve overall health and quality of life in individuals with mental disorders. Findings thus highlight the significance of incorporating mental health promotion and interventions in clinical populations.