Background Of all the adolescents in India, 7.3% are suffering from some form of mental disorder. They frequently use tobacco to cope with these problems, but get stuck in a vicious cycle of deteriorating mental health. Our study aimed to determine the effect of tobacco on the mental health status of adolescents studying in the 9th to 12th standards in 10 high schools in urban and rural areas near Patna, Bihar. Methodology An analytical cross-sectional study was conducted among 360 school-going adolescents recruited using stratified random sampling. Selected adolescents were given the Indian Adolescent Health Questionnaire. The mental health status was calculated from the Strengths and Difficulties Questionnaire (SDQ) score. Information on sociodemographic characteristics and tobacco use was also obtained. Independent t-test, analysis of variance, and multiple linear regression analysis were used for predicting the significant factors. Significance was set at p-values <0.05. Results In this study, 40 (11.1%) adolescents had abnormal whereas 55 (15.3%) had borderline overall SDQ scores. The majority of those affected had peer problems (40%) and conduct problems (24.7%). All SDQ components of conduct (F = 2.94, p = 0.013), hyperactivity (F = 2.90, p = 0.014), emotional problems (F = 1.14, p = 0.001), and peer pressure (F = 3.06, p = 0.010), as well as the overall SDQ score (F = 5.74, p < 0.001), were significantly associated with increasing age. The adolescents attending rural schools (13.28 ± 5.22, p = 0.047) had significantly higher SDQ scores than those attending urban schools (12.08 ± 5.60). Hyperactivity scores were significantly higher in those studying in class 10 compared to other classes and in those attending rural rather than urban schools. Emotional problems score was significantly higher in 16-17-year-old students than in 14-15-year-old students, in females than in males, and in class 10 than in class 9 students. Only 24 (6.7%) adolescents had a history of tobacco consumption at least once which was significantly associated with the SDQ score (17.71 ± 5.69; t = 4.95, df = 358, p < 0.001). Around 79.4% of adolescents were exposed to passive smoking from close friends which deteriorated their overall mental health status (14.50 ± 5.99; F = 6.29, df = 2,357, p = 0.002). Those who had smoked for more than 10 days had significantly greater conduct problems and lesser pro-social behavior. Overall, 96.1% agreed that tobacco is harmful to health, and 76.1% had seen anti-smoking messages in the media. Female gender, increasing class and age, and history of smoking or chewing tobacco at least once also led to a significant increase in emotional problems. Age, area of the school, history of tobacco consumption, and exposure to cigarette smoke by either a close friend or male guardian had a significant impact on the conduct, hyperactivity, peer problems, and overall mental health status of school-going adolescents. Conclusions Predicting risk factors such as age, area of the school, and the history of tobacco consumption by self or by close friends is important for decision-making by school administration regarding counseling for mental health and preventing tobacco use.