BackgroundUnemployment can diminish physical, psychological and social health. In this context, research shows that people with mental illness have even more difficulties finding occupation. Thus, some countries, such as Sweden, strive after creating job opportunities for this specific group. We investigated the effect of having an occupation on life satisfaction among individuals with mental illness and whether self-reported physical and psychological health mediated the relationship between being (un)employed and life satisfaction.MethodTwo-hundred eighty-seven individuals (148 males, 134 females, and 5 missing information) with mental illness, who received support and services from Swedish Municipalities in Blekinge, self-reported occupation, life satisfaction, and physical and psychological health.ResultsParticipants who reported having an occupation reported also significantly higher levels of life satisfaction, physical health, and psychological health compared to those without occupation. Nevertheless, these differences were rather small (Eta2 < 0.06). Moreover, the indirect effect of having an occupation on life satisfaction through physical and psychological health was significant. Finally, the total indirect effect of physical and psychological health (i.e., psychophysiological health) accounted for 53% of the total effect of having an occupation on life satisfaction.ConclusionFor individuals with mental illness there seems to be an almost equal importance of indirect and direct effects of having an occupation on their levels of life satisfaction. More specifically, while there are differences in life satisfaction within this population in relation to having an occupation, having an occupation leads to the sense of good psychophysiological health, which in turn helps individuals with mental illness to feel satisfied with their lives.