Development and maintenance of mental health is a major requirement for successful adolescent transition. During this critical process of change, when many mental health concerns first manifest, it has been suggested that positive leisure experiences provide opportunities that support and promote adolescent development and mental health. This investigation examined the relationship between leisure and mental health in an adolescent population. Based on an extensive literature review and analysis of focus-group interviews with 130 adolescents, it was hypothesised that self-efficacy, competence, and self-worth act as mediators between leisure and mental health. Measures of leisure, mental health, and the three intervening factors were collected from a total sample of 850 adolescents aged from 12 to 18 years. Structural equation modelling was used to investigate the interrelationships of the variables and for testing the goodness-of-fit of the hypothesised model. Results suggest that some forms of positive leisure involvement, namely achievement-oriented leisure (which provides challenges and a range of demands), and social leisure, do significantly influence mental health through the identified intervening factors. The construct of competence, in particular, formed a crucial link in the model. However, the third type of leisure, time-out leisure (which typically involves solitary activities such as lying on one's bed and reflecting, or watching television), demonstrated a significant but negative association with mental health. These outcomes provide some guidelines for facilitating and promoting mental health through leisure in adolescence.