Previous research sheds little light on changes in mental health conditions in former socialist countries that have undergone massive transformations. In this study, we utilize rarely available panel data from urban China to examine alterations in interpersonal trust, economic satisfaction, and psychological depression during the 2000s. We find that urban Chinese residents have become more satisfied with their economic conditions, but less trusting and, consequently, more depressed. Moreover, with increasing heterogeneity in urban areas, the gap between migrants and natives in trust has narrowed, resulting in a shrinking gap in depression. Conversely, the gaps in depression between coastal and inland residents and between political elites and others have widened, perhaps because of these groups' different future outlooks. In general, our findings indicate that being in economically advantageous positions still benefits urban residents' mental health. On the whole, however, Chinese urbanites have experienced more symptoms of psychological depression, despite their growing economic satisfaction with market reforms. The strong association between changes in trust and depression suggests that continued transformations of urban communities and rises in income inequality are likely to increasingly impact mental health through eroding interpersonal trust.