Background Early pregnancy is characterized by the initiation of physiological and psychological changes, which places pregnant women at risk of psychological distress and poor sleep, which is known to cause adverse maternal and neonatal outcomes. This study aimed to assess the prevalence of prenatal distress and sleep quality during early pregnancy and identify factors associated with prenatal distress among pregnant women from urban and rural settings. Methods The study was conducted with 325 pregnant women (175 rural, 150 urban) as a baseline assessment of theMAI (Mother and Infant) cohort, a longitudinal observational study in Pune, India. Data on sociodemography, anthropometry, clinical history, prenatal distress, and sleep quality were collected between August 2020 and March 2023. Mann Whitney U test and regression were used to assess correlates of sleep quality and prenatal distress. Results Over one-third (37.5%) (n=122) of women experienced prenatal distress. Women from rural areas reported a higher prevalence (40%) (n=70) of distress, and poorer sleep quality than urban women (51.4% (n=90) vs 38.7% (n=58)). High prenatal distress was moderately associated with poor sleep quality (ρ = 0.308, p = 0.001). After controlling for sociodemographic and clinical factors, high prenatal distress (B=2.63, 95% CI: 1.47-4.69) predicted poor sleep quality. Rural residence (OR: 6.37, 2.46-16.51), underweight BMI status (OR: 2.21, 0.97-5.05), presence of episodes of vomiting (OR: 1.70, 0.93-3.13), and poor sleep quality (OR: 0.74, 0.40-1.38) significantly (p<0.05) contributed to prenatal distress. Conclusion Prenatal distress and poor sleep quality are significant concerns for pregnant mothers globally and require early screening and management strategies to avoid adverse maternal and fetal outcomes.