Background There has been limited focus on understanding the barriers and facilitators to meeting the broader psychosocial needs of young people with mental illness, from the perspectives of young people themselves. This knowledge is required to advance the local evidence base and inform service design and development. Therefore, the aim of this qualitative study was to explore young people’s (10–25 years) and carers’ experiences of mental health services, focusing on the barriers and facilitators to services supporting young people’s psychosocial functioning.Method Young people with living experience of mental illness were involved in all stages of this research. Semi-structured interviews were conducted with 32 young people aged 10–25 years with experience of mental illness, and 29 carers (12 were parent-child dyads). Qualitative analysis was guided by the Social-Ecological Framework to identify barriers and facilitators at the individual (young person/carer level), interpersonal, and service/systemic level.Results Young people and carers identified eight barriers and six facilitators across the various levels. Barriers included, at the individual level: (1) the complexity of young people’s psychosocial needs and (2) lack of awareness/knowledge of services available; at the interpersonal level: (3) negative experiences with adults and (4) fragmented communication between services and family; and at the systemic level: (5) lack of services; (6) long waiting periods; (7) limited service accessibility; and (8) the missing middle. Facilitators included, at the individual level: (1) education for carers; the interpersonal level: (2) positive therapeutic relationships and (3) carer advocacy/support; and systemic level: (4) flexible or responsive services, (5) services that address the psychosocial factors; and (6) safe service environments.Conclusions This study identified lived-experience recommendations for public mental health policy and practice, including service design and development. To better enhance their psychosocial functioning, young people and carers want lived-experience workers to provide practical wrap-around support, and they want mental health services that integrate health and social care, and are flexible, responsive and safe. These findings will inform the co-design and development of a new community-based youth psychosocial service to support the psychosocial wellbeing of young people experiencing severe mental illness.