The impact of the COVID-19 pandemic on mental health is challenging to quantify because factors such as pre-existing risk, disease burden, and public policy varied across individuals, time, and regions. To understand dynamic relationships between these factors, we analyzed time-varying associations between psychiatric vulnerability, loneliness, psychological distress, and social distancing in a longitudinal study of mental health during the first year of the pandemic. Participants (n = 3655) were surveyed regarding psychological outcomes and COVID-19-related circumstances every two weeks for six months. We combined self-reported outcomes, regional social distancing estimates, and a psychiatric vulnerability classifier that predicted probabillity of diagnosis at time of enrollment. Loneliness and psychiatric vulnerability both impacted psychological distress. Loneliness and distress were also linked to social distancing, and loneliness fully mediated social distancing’s impact on distress. Future public health policies should address loneliness when social distancing is encouraged, particularly in those at risk for psychiatric conditions.