The question of whether economic inequality affects mental health has been controversial. In this paper, we propose a theoretical model of economic inequality affecting mental health. Based on the theoretical model, this paper discusses the boundary conditions (objective socioeconomic status, subjective socioeconomic status, perception of social mobility, and mental health dimensions) that influence the relationship between economic inequality and mental health, and the psychological mechanisms (social comparison, status anxiety, trust, social relation, and perception of unfairness) underlying the relationship between economic inequality and mental health. Future research needs to systematically examine the moderators and mediators of the relationship between economic inequality and mental health and focus on the impact of perception of economic inequality on mental health. Promoting theoretical and empirical exploration in this area can provide practical implications in psychology for achieving the great vision of common prosperity and improving the mental health of Chinese residents.