Chronic health conditions are hypothesized to disrupt the typical trajectory of child and adolescent development, and subsequently lead to increased levels of mental illness. However, due to methodological limitations in existing studies, this theory remains to be fully substantiated by empirical research. This study aimed to more thoroughly test hypotheses in the field. This study used data from the Avon Longitudinal Study of Parents and Children to examine the co-occurrence of mental illness among children with chronic illness in late childhood into early adolescence and explore mediating factors in these outcomes. Children with chronic health problems presented with a disproportionate rate of psychiatric illness at 10 years, and these chronic health problems continued to be associated with poor mental health outcomes at 13 years and 15 years. These outcomes were mediated by high levels of peer victimization and health-related school absenteeism. This study suggests that chronic illness may impact on functioning and social development in early adolescence, and consequently lead to increased rates of mental illness. Examining rates of school absenteeism and peer victimization may be key to identifying children at risk over time.