Youth with chronic physical conditions (CPCs) may be at greater risk for developing chronic mental health conditions (MHCs), and limitations in the ability to engage in developmentally appropriate activities may contribute to the risk of MHCs among youth with CPCs. We compared the risk of incident MHCs in youth with and without CPCs and explored whether activity limitations contribute to any such association. The 2003-2014 Medical Expenditure Panel Survey provided a nationally representative cohort of 48 572 US youth aged 6 to 25 years. We calculated the 2-year cumulative incidence of MHCs overall and by baseline CPC status. Cox proportional hazard models were used to estimate the association between CPCs and incident MHCs, adjusting for sociodemographic characteristics. Stepwise models and the Sobel test evaluated activity limitations as a mediator of this relationship. The 2-year cumulative incidence of MHCs was 7.8% overall, 11.5% in youth with CPCs (14.7% of sample), and 7.1% in those without. The adjusted risk of incident MHCs was 51% greater (adjusted hazard ratio 1.51; 95% confidence interval 1.30-1.74) in youth with CPCs compared with those without. Activity limitations mediated 13.5% of this relationship (P < .001). This nationally representative cohort study supports the hypotheses that youth with CPCs have increased risk for MHCs and that activity limitations may play a role in MHC development. Youth with CPCs may benefit from services to bolster their ability to participate in developmentally important activities and to detect and treat new onset MHCs.