The unification of Germany in 1990 brought about substantial social and economic changes in its eastern part, with new uncertainties and, despite increasing overall income, rising inequality. This paper explores the potential impact on health of these changes during the 1990s, looking specifically at income-related health inequalities in east and west Germany and its modulation by psychosocial factors. We used data from the German Socio-Economic Panel (GSOEP) for the years 1992 and 1997, including individuals aged 25+. We investigated changes in self-perceived health in the two parts of Germany and its socio-economic and psychosocial determinants. Analyses estimated odds ratios of less than good health using logistic regression. In 1992, 47% of east Germans rated their health worse than good compared with 54% in the west. By 1997, the east–west gap in self-rated health had disappeared, with the prevalence of poor health increasing to 56% in both parts. Income and education were important determinants of health in east and west, with, in the age-sex-adjusted model, those having available less than 60% of median equivalent income being at increased risk of poor health in 1992 (OR east 2.39, 1.45–3.94; OR west 2.04, 1.65–2.52). Addition of education reduced the strength of this relationship only slightly. In the west, income-related health inequalities widened between 1992 and 1997 yet the initially stronger gradient declined in the east, despite an overall increase in income inequality (OR east 1.63, 1.04–2.56; OR west 2.65, 2.19–3.21). The impact of education remained stable. Psychosocial variables were important determinants, mediating the effects of income, with leisure-cultural social involvement exerting the strongest effect in both east and west. The results show that, unlike in the west, the overall increase in income inequality in east Germany between 1992 and 1997 was not accompanied by a simultaneous increase in income-related health inequalities. This suggests that mechanisms involved in the association of socio-economic factors and health possibly behave differently in east and west.