There are increasing numbers of university students in China suffering from poor sleep and psychological well-being problems. In particular, the issues are more severe among the final year undergraduate students, because they are experiencing a transitory period from university life to the workplace. However, extant research has rarely explored sleep quality and psychological well-being of final year university students. To better understand the role of sleep quality in psychological well-being, we examined the association between different sleep quality and mental health. Based on a cross-sectional survey of 2495 full-time final year university students in China, we employed multivariable logistic regression to assess association between sleep quality and psychological well-being by controlling for sociodemographic factors such as age, gender, education, marital or relationship status, household conditions, place of birth, study subjects and etc. According to the research results, we can find strong association between sleep quality and psychological well-being. Having normal sleep quality is associated with lower level of psychological well-being problems. By contrast, poor sleep quality is associated with high level of negative psychological well-being. Poor sleep quality has higher potency than normal sleep quality due to negative bias. Among covariates, age, gender and education have significant effects on psychological well-being.