Research suggests that children of low-educated parents face greater health burdens during the passage from adolescence to young adulthood, as they are more likely to become low-educated themselves, establish behavioural and psychosocial disadvantages, or being exposed to unhealthy working conditions. However, studies examining the development and drivers of health inequalities during this particular life stage are limited in number and have produced varied results. This study investigates trajectories of self-rated health and overweight from 14 to 25 years of age, stratified by parental education, and explores the role of potential mediators (educational achievement, health behaviours, psychosocial factors, working conditions). We rely on prospective cohort data from the National Educational Panel Study (NEPS), a representative sample of 14,981 German ninth graders interviewed yearly from 2011 to 2021 (n = 90,096 person-years). First, we estimated random-effects growth curves for self-rated health and overweight over participants’ age and calculated the average marginal effect of high versus low parental education. Second, a series of simulation-based mediation analyses were performed to test how much of health inequalities were explained by children’s educational attainment (years of school education, years in university), health behaviours (smoking, alcohol, physical inactivity), psychosocial factors (number of grade repetitions, years in unemployment, chronic stress, self-esteem) and working conditions (physical and psychosocial job demands). We accounted for potential confounding by controlling for age, sex, migration background, residential area, household composition, and interview mode. Results show that higher parental education was related to higher self-rated health and lower probabilities of being overweight. Interaction between parental education and age indicated that, after some equalisation in late adolescence, health inequalities increased in young adulthood. Furthermore, educational attainment, health behaviours, psychosocial factors, and early-career working conditions played a significant role in mediating health inequalities. Of the variables examined, the level of school education and years spent in university were particular strong mediating factors. School education accounted for around one-third of the inequalities in self-rated health and one-fifth of the differences in overweight among individuals. Results support the idea that the transition to adulthood is a sensitive period in life and that early socio-economic adversity increases the likelihood to accumulate health disadvantages in multiple dimensions. In Germany, a country with comparatively low educational mobility, intergenerational continuities in class location seem to play a key role in the explanation of health inequalities in youth.