Arm morbidity (AM) arising from breast cancer (BC) treatment can detrimentally impact quality of life; often limiting a survivor's ability to participate in valued activities. The present study explored (a) the developmental time course of AM [restricted range of motion (ROM), pain, and arm volume changes], negative affect, and perceived disability in the immediate years post-surgery, and (b) the mediating role of perceived disability on the relationship between AM and negative affect over time. In this 5-year longitudinal study, BC survivors from four Canadian oncology clinics (n = 431) completed five annual clinical assessments, where differences in ROM (shoulder abduction, external rotation) and arm volume between the affected and non-affected arm were measured. The profile of mood states (POMS), disability of arm, shoulder, hand, and McGill Pain Questionnaire-Short form were completed. Results from general linear modeling showed that AM, negative affect, and perceived disability were greatest 1-year post-surgery, declined, and with the exception of arm volume changes, were significantly lower 5 years later. Negative affect was significantly associated with restrictions in shoulder abduction and external rotation (average r = -0.15; p < 0.05) and present arm pain (average r = 0.28, p < 0.01) at most assessments. The mediating role of perceived disability on the relationship between AM and negative affect was statistically significant in a majority of assessments. Perceived disability is the underlying factor driving the relationship between AM and mood disturbance over time. Rehabilitative therapy to improve survivors' functional well-being might mitigate the negative impacts of AM on emotional health.