Poor mental health has been associated with socioeconomic deprivation. The aim was to describe possible mechanisms underpinning the narrowing of mental health inequalities demonstrated by Communities First, an area-wide regeneration programme in Wales, UK. Propensity score matched data from the Caerphilly Health and Social Needs Electronic Cohort Study, assessed changes in mental health, neighbourhood-level social cohesion, belongingness, quality and disorder. A multiple mediation analysis found c.76% of the total indirect effect was accounted for by neighbourhood quality and disorder. Targeted regeneration that increases neighbourhood quality and reduced neighbourhood disorder could mitigate the mental health inequalities associated with socioeconomic deprivation.