The relations between shyness and internalizing problems have been mainly explored at the individual level, with little known about its dynamics at the group level. This study aims to examine the mediating effect of individual-level sport engagement and the moderating effect of class-level sport participation in the relations between shyness and internalizing problems. The participants were 951 children attending primary and middle school from grade 3 to grade 7 (Mage = 11 years, 509 boys) in urban areas of China. Cross-sectional data were collected using self-report assessments. Multi-level analysis indicated that (1) shyness was positively associated with internalizing problems; (2) sport engagement partially mediated the relations between shyness and internalizing problems; and (3) class sport participation was a cross-level moderator in the mediating relations between shyness, sport engagement, and internalizing problems. Shy children in classes with a higher level of sport participation tend to have less sport engagement and more internalizing problems than those in classes with a lower level of sport participation. These findings illuminate implications from a multi-level perspective for shy children's adjustment in a Chinese context. The well-being of shy children could be improved by intervening in sport activity, addressing both individual engagement and group dynamics, such as class participation.