PurposeNegative life events (LEs) are associated with mental health problems in youth. However, little is known about underlying mechanisms. The aim of the study was to investigate whether exposure to LEs modifies stress sensitivity in youth’s daily life.MethodsEcological Momentary Assessment (EMA) was used to assess stress sensitivity (i.e., association of momentary stress with (i) negative affect and (ii) psychotic experiences) in 99 adolescents and young adults (42 service users, 17 siblings, and 40 controls; Mage 15 years). Before EMA, exposure to LEs (e.g., intrusive threats, experience of loss, serious illness) was assessed.ResultsLifetime as well as previous-year exposure to LEs modified stress sensitivity in service users: they experienced more intense negative affect and psychotic experiences in response to stress when high vs. low exposure levels were compared. In contrast, controls showed no differences in stress sensitivity by exposure levels. Looking at specific types of LEs, controls showed less intense negative affect in response to stress when high vs. low exposure levels to threatening events during the last year, but not lifetime exposure, were compared. In siblings, no evidence was found that LEs modified stress sensitivity.ConclusionStress sensitivity may constitute a putative risk mechanism linking LEs and mental health in help-seeking youth, while unfavourable effects of LEs on stress sensitivity may attenuate over time or do not occur in controls and siblings. Targeting individuals’ sensitivity to stress in daily life using novel digital interventions may be a promising approach towards improving youth mental health.